This paper revisits the debate on the 'red herring', viz. the claim that population ageing will not have a significant impact on health care expenditure (HCE). It decomposes HCE into seven components, includes both survivors and deceased individuals, and estimates a two-part model of the demand for health care services, using a large Swiss data set for 1999. It finds no or weak age effects on HCE for the components of HCE when proximity to death is controlled for, and points to differences between users and non-users of long-term care (LTC). For deceased non-users of LTC services, a falling age curve for all components of HCE except for inpatient care is observed, while survivors show a weak age effect in ambulatory and inpatient care once proximity to death is controlled for. As to surviving users of LTC services, their probability of incurring LTC expenses markedly increases in old age, while most of the components of their conditional HCE show a decreasing age profile. Thus, a 'school of red herrings' can be claimed to exist-with the possible exception of LTC, where ageing might matter regardless of proximity to death.

The observation that average health care expenditure rises with age generally leads experts and laymen alike to conclude that population ageing is the main driver of health care costs. In recently published studies we challenged this view (Zweifel et al., 1999;Felder et al., 2000). Analysing health care expenditure of deceased persons, we showed that age is insignificant if proximity to death is controlled for. Thus, we argued that population ageing per se will not have a significant impact on future health care expenditure. Several authors (Salas and Raftery, 2001;Dow and Norton, 2002;Seshamani and Gray, 2004a) disputed the robustness of these findings, pointing to potential weaknesses in the econometric methodology. This paper revisits the debate and provides new empirical evidence, taking into account the methodological concerns that have been raised. We also include surviving individuals to test for the possibility that the relative importance of proximity to death and age differs between the deceased and survivors. The results vindicate our earlier findings of no significant age effect on health care expenditure of the deceased. However, with respect to the survivors, we find that age may matter. Still, a naïve estimation that does not control for proximity to death will grossly overestimate the effect of population ageing on aggregate health care expenditure. Following Stearns and Norton (2004), we conclude that ''it is time for time to death'' in projections of future health care costs.

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract Studies on the effect of ageing on health care expenditures (HCE) have revealed the importance of controlling for time-to-death (TTD). These studies, however, are subject to possible endogeneity if HCE influences remaining life expectancy. This paper introduces a ten year observational period on monthly HCE, socioeconomic characteristics, and survivor status to first predict TTD and then uses predicted values of TTD as an instrument in the regression for HCE. While exogeneity of TTD has to be rejected, core results concerning the role of TTD rather than age as a determinant of HCE (the "red herring" hypothesis) are confirmed. Terms of use: Documents inJEL Classification: I10, D12

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Buchner and Wasem (2006) claimed that the health care expenditure (HCE) of the old grows faster than that of the young, resulting in a steepening of the age profile of HCE over time. This paper tests the steepening claim for Swiss health insurance, covering the time period 1997-2006 and the 26 cantons. It analyses the cantonal HCE profile of men and women, taking into account differences in the mortality rates. The study covers seven components of health care, including long-term care. By and large, no evidence is found for relevant higher growth rates for either total or the components of HCE in old age.