New studies highlight the impact of population ageing on revenues and expenditures for health

Kobe, Japan, and Brussels, Belgium, 18 October 2019

Population ageing is not a major driver of increasing health-care spending – this is a key finding of two new studies to better understand how ageing impacts public revenues and expenditures for health, produced by the WHO Centre for Health Development in Kobe, Japan, and the European Observatory on Health Systems and Policies. The research was launched on the margins of the G20 Health Ministers’ Meeting in Okayama, Japan.

One study examined how countries generate public revenues for health, which is key for rolling out universal health coverage. It found that countries with older populations such as Japan that rely heavily on social contributions linked to the labour market – including payroll taxes – are facing challenges to sustain revenues as more people retire. Simulations found that increasing the number of contributors, the contribution rate and diversifying funding would not fully offset the drop in revenues from social contributions in countries that already have large older populations.

Countries with younger populations such as Indonesia are better able to generate revenues from all sources – including income taxes, taxes on goods and services, and property taxes – which grow over time as the population ages. However, this potential gain depends on a country’s efficiency in collecting taxes.

A further study tested the assumption that population ageing will lead to rocketing growth in health spending. Using population projections for the European Union, Indonesia and Japan, the research found that population ageing contributes only modestly to increases in publicly funded health care.

The researchers applied hypothetical scenarios to explore growth in health expenditures if older people were costlier to care for – for instance, if they used more health care, if they used a higher intensity of health care, if the prices of health care greatly increased, or if the benefits expanded considerably. The study found that population ageing did lead to growth in public expenditure, but it was moderate and manageable.

This implies that population ageing is not, and will not become, the major driver of increases in health-care spending. Instead, such drivers are linked to policy choices such as service delivery models, prices of care and new technology.

Dr Jon Cylus of the European Observatory and one of the study authors commented: “This research highlights that the way population ageing affects our economies, our public sectors and our society is a choice. There are many policy options at our disposal to ensure that as the population ages, health and long-term care systems are adequately financed and that health costs do not grow out of control.”

In conclusion, the studies found that for countries with younger populations, population ageing will positively affect the ability to raise public revenues if tax collection mechanisms are properly formalized. Countries with older populations can partially offset the declines in labour-related contributions through increases in the number of contributors and the contribution rate.

Dr Sarah Louise Barber of the WHO Centre for Health Development stressed, however, the importance of delinking entitlements to health care from the payment of contributions. “Relying on social contributions and payroll taxes to finance health care is unsustainable as populations age. This finding is in line with the principles of universal health coverage,” she said.