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The health economics of ageing -

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Norman Swan: According to a new book on health economics, one of the reasons healthcare costs are blowing out could be the introduction of expensive new technologies (and hopefully the one Karlheinz was talking about is not going to be one of those), as well as costly government policies. And with the Baby Boomer population bulge passing through the system, things need to change across a broad front, and counterintuitively the problem isn't really ageing. The author is Simon Eckermann, who is Professor of Health Economics in the Australian Health Services Research Institute at the University of Wollongong.

Simon Eckermann: Up until now we haven't really experienced in terms of health expenditure the impact of ageing because we've had such large increase in life expectancy that it's been protective of the ageing effect, and that's predominantly because there is less people dying in any given age cohort, and a lot of the health expenditure is associated with proximity to death.

Norman Swan: But eventually you're going to die, and in the five or so years before you die your health expenditure goes up. And it doesn't really matter at what age you die, it's actually the five years before you die that's the issue. So it's not the fact that the average age of the Australian population is going up, it's just that you've got this bulge of people coming through from the Second World War on, the so-called Baby Boomers, who are going to hit this five years before they die. It's just a population issue, it's nothing to do with ageing.

Simon Eckermann: Yes, and indeed what's going to happen is the protective effect that you've had with health expenditure from them not dying up until now is suddenly going to reverse in terms of them dying in large numbers when they get to the ages of about 85.

Norman Swan: So if there's any message that a Health Report listener can take away from this is forget this conversation about ageing, it's simply a population issue.

Simon Eckermann: Yes, so those Baby Boomers are now 71, the oldest of them, the youngest of them are 53, and I like to refer to them as the love handles of the aged sex demographic, and particularly in their middle age. As they get older, the real issue is we are going to need age and healthcare reform because we will have three times as many people who are over 85, three times as many people with dementia by 2050, and it's really those issues we face.

The real issue is for the last 30 or 40 years that ageing effects have only actually explained about 5% of the increase in health expenditure. So it's all the other things that we've done, and particularly inefficient policies such as the rebate on private health insurance, but more generally the high prices we've been paying for many of our medicines and devices and all sorts of aspects of new technology which have led to much higher costs within our health system.

However, in the next 30 to 40 years as they start to die, you will face those costs. The predictions from the Productivity Commission in 2006 were that by 2050, 50% of health expenditure will be explained by ageing costs, and a lot of that will be associated with the end-of-life costs.

The key thing is at the moment we have very expensive end-of-life care, and we also have very high prices for new technologies. And indeed, it's not just about the cost here. I'm really talking about the need for successful ageing. So Alexandre Kalache has coined a lovely term, gerontolescence. And he's really pointing at the fact that the Baby Boomers redefined adolescence when they went through in the 1960s, and as they age they will demand to have active, successful ageing…

Norman Swan: And they will be just as rebellious.

Simon Eckermann: Yes indeed. But that means they want to remain physically, mentally and socially active, and they will be doing that for quite a long period.

Norman Swan: But as Michael Marmot has said, there's going to be an inequity in that. So the people like you and I who are able to afford time in our lives to go to the gym, eat healthily, we are living in areas where you can go to the local supermarket and buy healthy food, we're in good shape, we don't need much government policy to help us. It's people who perhaps haven't had the education and good fortune that you and I have had that are going to be in trouble, aren't they?

Simon Eckermann: Well, in reality, successful ageing, if we do it as a culture, will be there for all of us. And really it's about health promotion prevention policies. So it's about creating age and dementia friendly communities and cities…

Norman Swan: What does that actually mean? It just trips off the tongue, but what does that actually mean?

Simon Eckermann: Well, in practice it means things like community walking paths, community gardens, age and dementia friendly signage, shops, taxi services and transport systems, all to encourage people to remain active. If you keep people active and keep them socially, mentally and physically engaged, then they don't end up in nursing homes, because that's where the huge cost is going to be unless we address the current health and aged care system.

Norman Swan: But what about the joint replacements and everything else to keep you active, to maintain your activity?

Simon Eckermann: Certainly there will be some aspects of that, but we are also of course experiencing in Australia and have been since the late '90s when we had those three policies, the combination of the private health insurance rebate, the Medicare levy surcharge, and probably the most important one which was the lifetime cover, those three things we've seen increases in private health insurance, but we've also seen huge increases in private activity, and a lot of it unnecessary. So it's the inefficiencies where we've really wasted the opportunity we've had with these large increases in life expectancy, which have actually mainly been attributable to preventative and public health reform, we've wasted those on very high prices for new technologies and indeed on things which aren't really necessary care.

Norman Swan: So what's the solution for that, if you're going to get the right settings in the health system to hit that bulge which is starting right now?

Simon Eckermann: In terms of the private health insurance rebate, that's currently over $6.5 billion a year, and the evidence is that if we removed it we would still have pretty much the same level of private health insurance. But more than that, there is evidence that those three things together actually have put net pressure on the public system…

Norman Swan: Why? Because it's supposed to relieve pressure on the public system.

Simon Eckermann: It was meant to, but in reality it led to virtually no extra increase in private health insurance, the rebate I'm talking about solely now here. What it did do is create a whole lot of unnecessary activity in the private sector in combination with the other two policies which then dragged healthcare workers away from the public system.

Norman Swan: And you're also talking about palliative care because obviously people are going to die, you know roughly when they are going to die, and you're arguing that we need to reduce the cost and increase the accessibility of palliative care.

Simon Eckermann: Well, it's actually more that we need to be having palliative care which actually meets the needs of palliative patients. And palliative patients…and I've worked on the National Palliative Collaborative for the last 15 years with people like Meera Agar and David Currow. But what we've really shown in that National Palliative Collaborative is that the things which palliative patients value most, their preferences for finalising affairs, which they normally divide into personal affairs and financial affairs. The second thing they talk about is where they want to be, which is normally in their community of choice, typically at home but not always at home, and be with the people they want to be with, their friends, family et cetera. And the problem is we have many very expensive therapies at the end of life, particularly cancer therapies which often drag people away from their community of choice, give them side-effects where they don't finalise affairs et cetera.

Norman Swan: So just a recap; there's got to be reform on multiple fronts for the healthcare system to be affordable, the aged care system to be affordable, and people to have preventative activities to keep them active.

Simon Eckermann: Definitely all those things are important. I'd also add that there's a question about have I got enough research to support this, monitoring the quality and use of services in practice, so we actually get feedback loops from the health system that way.

Norman Swan: Simon, thank you very much for joining us.

Simon Eckermann: Thank you.

Norman Swan: Simon Eckermann is Professor of Health Economics in the Australian Health Services Research Institute at the University of Wollongong. His most recent book has got the snappy title Health Economics from Theory to Practice, published by Adis, and we'll have the details on our website.

I'm Norman Swan, thanks for joining us, see you next week.