Aging of Society and New Medical Technology: The Challenge for Health Insurers to Meet the Expectations of Consumers and Governments

2. The ideal health profile and the demand for health care and medical innovation
Individuals at least in Western culture seem to share a common goal, viz. to remain in perfect health as long as possible and to drop dead when the time has come [Rowe and Kahn (1997); however, see Phelan et al. (2004) for the importance of cultural differences]. In medical jargon, they seek to attain perfect ‘rectangularization’ of their age-related health profile (see panel A of Figure 1). The (stylized) profile No. 1 depicts the current situation in developed countries. It comes close to the ideal in that the health of newborns is sufficiently under control to avoid infant mortality, while deaths before the age of 70 have become the exception. Indeed, judging from the rectangularization of survival curves, Schoder and Zweifel (2011) conclude that since 1960 citizens of OECD countries have generally been increasingly able to avoid extreme losses of health resulting in death. In a similar vein, Cambois and Robine (1996) estimate that two-thirds of the longevity gained since the early 1960’s in major industrial countries are disability-free. If these trends are to continue, rectangularization of the health profile will become ever more perfect, combined with a higher age at death (see profile No. 2 of panel A).


Note that the shaded areas in panel A of Figure 1 symbolize healthy life years lost, caused by the gap between effective and ideal health status. This gap thus reflects morbidity; its implied age profile is shown in panel B of Figure 1. Regardless of whether profile No. 1 or 2 applies, the gap increases by definition when the individual approaches death. Individuals by assumption seek to close this gap using their own resources and medical care. Yet with increasing age, their own efforts (mainly time spent on prevention) become less effective, causing an increased reliance on medical care, in particular of its most innovative variety. For it is medical innovation that allows to close the gap (i.e. overcome morbidity) especially when it is large, i.e. in life-threatening situations. This (Western) view of human behavior thus leads to the Red Herring hypothesis, stating that medical care and especially medical innovation is in highest demand just before death, regardless of age (Zweifel et al., 1999).

Contrary to received epidemiological wisdom, the Red Herring hypothesis claims that it is not age that drives the demand for medical care but closeness to death. In addition, a comparison of the current profile No. 1 and the future profile No. 2 of panel B of Figure 1 suggests that this demand (and hence HCE) will become even more concentrated towards the end of life, given unchanged incentives. However, if the insured were made to bear a higher share of their HCE shortly before death (or were to benefit from any cost savings achieved through lowered premiums; see Section 3 below), this trend could be broken. At the same time it should be noted that the expensive final years of life will be distributed over a longer life span, thus rendering future cohorts less costly. Unfortunately, this is of little consolation to governments and health insurers. On the one hand, governments are not willing to adopt a planning horizon of 70 years and more; on the other hand, health insurers know too well that medical innovation will almost certainly continue to inflate HCE in the meantime.

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