Ageing and health care expenditure in EU-15

The purpose of this paper is to investigate the relationship between ageing and the evolution of health care expenditure per capita in the EU-15 countries. A secondary purpose is to produce estimates that can be used in projections of future health care costs. Explanatory variables include economic, social, demographic and institutional variables as well as variables related to capacity and production technology in the health care sector. The study applies a co-integrated panel data regression approach to derive short-run relationships and furthermore reports long-run relationships between health care expenditure and the explanatory variables. Our findings suggest that there is a positive short-run effect of ageing on health care expenditure, but that the long-run effect of ageing is approximately zero. We find life expectancy to be a more important driver. Although the short-run effect of life expectancy on expenditure is approximately zero, we find that the long-run effect is positive, so that increasing life expectancy leads to a more than proportional, i.e. exponential, increase in health care expenditure.