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Medical and long-term care with endogenous health and longevity

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Abstract

For the population over 65, nursery care expenditures constitute on average the largest share in total health expenditures. In this paper, we distinguish between medical care, intended to improve one�s state of health, and personal care required for daily routine. Personal care can be either carried out autonomously or by a third party. In the course of aging, autonomous personal care is eventually substituted by nursery care. We set up a life-cycle model in which individuals are subject to physiological aging, calibrate it with data from gerontology, and analyze the interplay between medical and nursery care. We replicate health behavior and life expectancy of individuals and in particular the empirically observed patterns of medical and nursery care expenditure. We then analyze the impact of better health and rising life expectancy, triggered by rising income and medical progress, on the expected cost of nursery care in the future. We predict an elasticity of nursery care expenditure with respect to life expectancy of 1/3. In terms of present value at age 20, life-time nursery care expenditure is predicted to decline with rising life expectancy.

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  • Schünemann, Johannes & Strulik, Holger & Trimborn, Timo, 2019. "Medical and long-term care with endogenous health and longevity," FSES Working Papers 505, Faculty of Economics and Social Sciences, University of Freiburg/Fribourg Switzerland, revised 20 Jan 2020.
    • Handle: RePEc:fri:fribow:fribow00505
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    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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