The Mythology of Boomers Bankrupting Our Healthcare System

Berlin, March 13, 2008 -- By bringing 600 government and industry leaders together from more than 50 countries, the "World Health Care Congress Europe" (WHCCE) last month offered a splendid window on the wide variety of solutions that countries around the world are using as they struggle toward healthcare reform. One constant theme of the conference: "No One Thing Works."

When the three-day conference ended, it also was apparent that developed countries share many of the same problems. One that stands out is the fact that our populations are aging. Each country faces the same question: How will a shrinking work force possibly pay for the medicine their nations' retirees will need?

This brings me to Princeton economist Uwe Reinhardt's speech on the very first day of the conference. The only American to speak at WHCCE, Reinhardt focused on what he called "the folklore that people bring to the healthcare policy table." By nature an iconoclast, Reinhardt spent the next 20 minutes shattering some of the myths that have become part of the received wisdom among policymakers.

Begin with the notion that an aging population is a major factor driving healthcare inflation. In the United States this is accepted as a justification for why the nation's healthcare bill now equals more than $2 trillion -- and why we must expect it to climb ever higher.

Bad news is often more gripping than good news, and "if you want to be a popular speaker, you need to feed the paranoia of your audience," Reinhardt observed, pointing to the first slide of his PowerPoint presentation -- a chart illustrating just how quickly we can expect a horde of wrinkly boomers to take over the nation. Some stooped and shriveled, others proudly bloated, these former members of the Pepsi generation will be far more demanding, we're told, than the World War II veterans who preceded them.

A second slide is even more distressing, revealing that healthcare spending on patients over 75 averages about five times what we spend on 40-year-olds.

Yet the next graph that Reinhardt offers is a little puzzling.

Here, we see that the United States spends close to $7,000 per person on care -- even though its population is younger than the citizens of most developed countries, including Germany, Italy and Japan. (Because of a slightly higher fertility rate and an annual intake of 900,000 legal immigrants, the median age in the United States will rise in just three years to 39 over the next quarter-century, before the aging of America really starts to accelerate.) Meanwhile, Japan's population has been graying for some time, yet it spends only $1,000 per person. Could eating fish really make that much difference?

Reinhardt's next graph provides the explanation.

It turns out that when you look at estimates of growth in healthcare spending from 1990 to 2030, a senescent citizenry plays only a minor role in the projected jump from $585 billion (what we laid out for healthcare in 1990) to $14,026 billion (what analysts say we'll ante up in 2030, assuming we continue in our profligate ways).

What will be the biggest factor pushing the tab so much higher? Innovation. "The healthcare industry will continue developing new stuff for every age group," Reinhardt explains. Will that "new stuff" -- in the form of new drugs, devices, tests and procedures -- be worth it? Some of it will be. Some won't. Indeed as this article from Health Affairs reveals, over the past 12 years, rising spending on new medical technologies designed to address heart disease has not meant that more patients have survived. In many areas, we seem to have reached a point of diminishing returns. This also is true in the drug industry, where most new entries are "me too drugs" -- little different from products already on the market.