Aging Curves for Health Care Costs in Retirement

This paper explores the relative significance of aging as a determinant of financial cost of health care beyond age fifty, with particular attention to the effect for ages 65 and over. The paper presents concepts of aging factors and aging curves, which define relative values between ages for utilization or cost of health care services. General conclusions are drawn from Medicare data that utilization and cost differ by age, but that aging factors vary across services and may be less significant at the very old ages. The author then turns to the question of measuring the significance of an aging curve assumption and what accuracy is lost in the simpler alternative of a single value across an age range. The practical effects of relative value aging curves are examined through hypothetical examples of increasing complexity in a retiree health valuation. A method to measure the impact is put forth. Three important variables are discussed in some detail. A survey to ascertain aging curve findings and preferences of health actuaries is introduced and discussed, with one representative curve presented. This curve is then measured to understand its impact vis-à-vis other curves.It may be important to note this is not a study deriving a recommended aging curve. Rather, it is an exploration of the significance of an assumption that has not received much public actuarial scrutiny. A conclusion places the paper-s findings in a context of a dynamic health care economy in an aging society.