The majority of the community has widely accepted the adage that as one ages their state of health worsens and as a result greater amounts of money will be spent on health care. As many countries are now facing ageing populations, it has become common practice to extrapolate this simplistic notion to attempt to predict the expected consequences on future health care expenditure. Despite the intuitive appeal of this relationship, this paradigm has come under scrutiny as health economists grapple with the true drivers of health care expenditure.
Within the health economic literature many authors have begun to comment on the potentially severe increase in health expenditures likely to be experienced in the near future in developed nations. These preliminary projections are the result of analyses of trends in a country's demographic structure. As there is a developed understanding that health care expenditures rise in the elderly, many analysts predict that given likely increases in the percentage of the population over 65, health care expenditure would dramatically, and, in some opinions, catastrophically increase.
Despite the apparently logical claims of these authors, a seminal article disputing such a straightforward approach has been written. Rather than age per se being accountable for rises in health care expenditure, it is claimed time to death is the true explanatory factor. Such shifts in population age should not, by themselves, be the focus of policy makers, but the percentage of the population within a defined time period prior to death.
As more studies within this field are conducted, the mounting evidence suggests that it is proximity to death that explains health expenditure behaviour. This has significant consequences for how policy makers should predict future health expenditure. Although some research has been conducted within Australia, the government and other research within Australian research has been reluctant to use time to death models. The Productivity Commission, in assessing the impact of ageing on health care expenditure by Australian governments, adopt a more traditional model and adjust slightly for cost of death.
This paper will first recreate the model adopted by the Productivity Commission to reconfirm the results reported by the Productivity Commission. The model used by the Productivity Commission will then be used to retrospectively predict historic health care expenditure. The purpose of this will be to assess the ability of the model to accurately predict future health care expenditure. Any model used to inform policy makers and direct government expenditure must be rigorously tested. Although, such testing is not definitive, it can help identify weaknesses in the model and how much weight can be given to any recommendations based on the results of the model. Public health is and always will be an area of much contention and debate therefore the quality of the evidence being reported must be confirmed and the results of any models used must be replicable and validated.