Understanding the value of chronic disease care is critical to confronting the challenges of aging societies. In a new ebook published by the Centre for Economic Policy Research, APARC Deputy Director and Asia Health Policy Program Director Karen Eggleston provides a framework for assessing the social value of health spending.

The world population is aging faster than ever before and governments must confront the increasing burden of healthcare spending on their economies. At a time when the economics of aging is inseparable from the economics of healthcare, successful adaptations to older population age structures necessitate better understanding of the value of medical care. Policymakers, in particular, must incorporate value into considerations of healthcare cost growth, so they can determine the extent to which average health improvements offset added cost, reduce cases in which health spending rises without sufficient corresponding health outcomes, and reward those in which “we are getting what we pay for.”

A new book chapter, authored by APARC Deputy Director and Asia Health Policy Program Director Karen Eggleston, provides a framework for assessing the social value of health spending. Titled “Understanding ‘value for money’ in healthy aging,” the chapter is part of an ebook, Live Long and Prosper? The Economics of Ageing, published by the Centre for Economic Policy Research (CEPR).

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Quality-Adjusted Cost of Care

How do health economists incorporate value into measurements of health spending and how do they measure the social value of medical care? First they assume each additional year of life brings a given monetary value. Then they measure the growth in value to patients as monetized gains in “quality-adjusted life-years,” a metric that includes increases in life expectancy and quality of life. The difference between the change in health spending and the change in monetized gains on improved survival is the net change in quality-adjusted health spending or the net value of medical care.

Understanding the value of chronic disease care is especially critical in aging societies, as governments must transform their health systems to support patients who will live with chronic diseases for decades. Health benefits of medical care, however, are difficult to aggregate across disparate services and diseases, and hence focusing on management of a single important chronic disease allows researchers to develop metrics of quality improvement and value that are linked to rigorous clinical studies. Eggleston describes a recent international research collaboration, which she was part of, that did just that. The researchers studied quality adjustment for one disease of growing global prevalence, type 2 diabetes, in four different health systems: one in Europe (the Netherlands) and three in East Asia (Japan, Hong Kong, and Taiwan).

Results of the study suggest that, in each health system, the value of improved survival outweighs the increase in health spending. For example, in the case of Japan, Eggleston and her colleagues found a positive value net of $2,595 for $100,000 value of a life-year. They also compared net value across the four health systems and different patient samples, finding mean net value that ranged between $600 and $10,000 for a $100,000 value of a life-year. Moreover, net value was positive for all age groups and remains positive and significant for individuals well beyond traditional retirement ages. These results, says Eggleston, indicate “the importance of continuing investments in medical treatments and services that deliver health outcomes of commensurate or higher value.”

Policy Implications

Confronting the challenges of aging societies requires careful thinking about the value of investments in new technologies for managing chronic conditions. To promote healthy aging governments must be “resiliently persistent in measuring the value of innovations for healthy aging and rewarding those that deliver high net value,” argues Eggleston. The goal should be improving the “value for money” of medical care rather than applying largescale cost controls that might stifle important breakthroughs.

The four-system study by Eggleston and her colleagues provides a framework for developing methods for assessing quality improvement and the net value of chronic disease spending and, more broadly, for measuring the value of healthy aging.

Download Eggleston’s chapter as part of the entire ebook >>

Learn more about Dr. Karen Eggleston’s research agenda seeking to assess net value in diabetes management and to identify and analyze innovation for healthy aging.

People today can generally expect to live longer and, in some parts of the world, healthier lives. The substantial increases in life expectancy underlying these global demographic shifts represent a human triumph over disease, hunger, and deprivation, but also pose difficult challenges across multiple sectors. Population aging will have dramatic effects on labor supply, patterns of work and retirement, family and social structures, healthcare services, savings, and, of course, pension systems and other social support programs used by older adults. Individuals, communities, and nations around the world must adapt quickly to the demographic reality facing us and design new approaches to financing the many needs that come with longer lives.

This imperative is the focus of a newly published special issue of The Journal of the Economics of Ageing, entitled Financing Longevity: The Economics of Pensions, Health and Long-term Care. The special issue collects articles originally written for and discussed at a conference that was dedicated to the same topic and held at Stanford in April 2017 to mark the tenth anniversary of APARC’s Asia Health Policy Program (AHPP). The conference convened top experts in health economics and policy to examine empirical and theoretical research on a range of problems pertinent to the economics of aging from the perspective of sustainable financing for long lives. The economics of the demographic transition is one of the research areas that Karen Eggleston, APARC’s deputy director and AHPP director, studies. She co-edited the special issue with Anita Mukherjee, a Stanford graduate now assistant professor in the Department of Risk and Insurance at the Wisconsin School of Business, University of Wisconsin-Madison.

The Financing Longevity conference was organized by The Next World Program, a Consortium composed of partners from Harvard University, Fudan University, Stanford University, and the World Demographic and Aging Forum, and was cosponsored by AHPP, the Stanford Institute for Economic Policy Research, and the Stanford Center on the Demography and Economics of Aging.

The contributions that originated from the conference and are collected in the Journal’s special issue cover comparative research on more than 30 European countries and 17 Latin American countries, as well as studies on Australia, the United States, India, China, and Japan. They analyze a variety of questions pertinent to financing longevity, including how pension structures may exacerbate existing social inequalities; how formal and informal insurance interact in securing long-term care needs; the ways in which the elderly cope with caregiving and cognitive decline; and what new approaches might help extend old-age financial security to those working outside the formal sector, which is a major concern in low-income countries.

Another challenge of utmost importance is the global pension crisis, caused due to committed payments that far exceed the saved resources. It is a problem that Eggleston and Mukherjee highlight in their introduction to the special issue. By 2050, they note, the pension gap facing the world’s eight largest pension systems is expected to reach nearly US $400 trillion. The problem cannot be ignored, as “the financial security of people leading longer lives is in serious jeopardy.” Indeed four of the eight research papers in the special issue shed light on pensions and inequality in income support for older adults. The other four research papers focus on health and its interaction with labor force participation, savings, and long-term care.

The issue also features two special contributions. The first is an interview with Olivia S. Mitchell, a professor at the University of Pennsylvania’s Wharton School and worldwide expert on pensions and ageing. Mitchell explains the areas offering the most promise and excitement in her field; discusses ways to encourage delayed retirement and spur more saving; and suggests several priority areas for future research. The latter include applying behavioral insights to questions about retirement planning, improving financial literacy, and advancing innovations to help people imagine themselves at older ages and save more for their future selves.

The second unique contribution is a perspective on the challenges of financing longevity in Japan, based on the keynote address delivered at the 2017 Stanford conference by Mr. Hirotaka Unami, then senior Director for policy planning and research of the Minister’s secretariat of the Japan Ministry of Finance and currently deputy director general with the Ministry’s Budget Bureau.

In Japan, decades of improving life expectancy and falling birth rates have produced a rapidly aging and now shrinking population. Data released by Japan’s Statistics Bureau ahead of Children's Day on May 5, 2019 reveal that Japan’s child population (those younger than 15) ranks lowest among countries with a total population exceeding 40 million. In his piece, Unami focuses on the difficult tradeoffs Japan faces in responding to the increase in oldest-old population (people aged 75 and over) and the overall population decline. Japan aspires to do so through policies that are designed to restore financial sustainability for the country’s social security system, including the medical care and long-term care insurance systems.

Unami argues that Japan must simultaneously pursue a combination of increased tax revenues, reduced benefit growth, and accelerated economic growth. He notes that these three-pronged efforts require action in five areas: review Japan’s pension policies; reduce the scope of insurance coverage in low-risk areas; increase the effectiveness of health service providers; increase a beneficiary’s burden according to their means; and enhance policies for preventive health care for the elderly.

The aging of our world’s population is a defining issue of our time and there is pressing need for research to inform policies intended to improve the financial well-being of present and future generations. The articles collected in the Financing Longevity special issue and the ongoing work by APARC’s Asia Health Policy Program point to multiple areas ripe for such future research.

View the complete special issue >>

Learn more about Dr. Karen Eggleston’s work in the area of innovation for healthy aging >>

On April 13, the United States Institute of Peace hosted a panel discussion titled “Ending Civil Wars: How Can We Succeed with Limited Opportunities?” The session was moderated by the director of the U.S.-Asia Security Initiative, Ambassador Karl Eikenberry.

USIP recently posted video and audio-only recordings of the 90-minute session for public view. Watch/Listen here >>

The session focused on insights from “Civil Wars, Violence, and International Responses”, a project co-directed by Ambassador Eikenberry and FSI Senior Fellow Stephen Krasner. Through the efforts of 36 U.S. and international project participants (8 of whom were affiliated with FSI), the American Academy of Arts and Sciences dedicated two issues of its quarterly journal Daedalus to their writings (see below).

Joining Ambassador Eikenberry and Professor Krasner on the dais were Nancy Lidborg (President of USIP), Dr. Stephen Biddle (Professor, Georgetown University), Barry Posen (Professor, Massachusetts Institute of Technology), and Clear Lockhart (Director and Co-Founder of the Institute for State Effectiveness).

Related Publications:

Civil Wars & Global Disorder: Threats & Opportunities - Daedalus, Fall 2017

Ending Civil Wars: Constraints & Possibilities - Daedalus, Winter 2018

The Asia Health Policy Program at the Shorenstein Asia-Pacific Research Center, in conjunction with The Next World Program, is soliciting papers for a workshop, “Inequality & Aging,” held at the University of Hohenheim from May 4-5, 2018. The workshop will result in a special issue of the Journal of the Economics of Ageing, and aims to address topics such as:

• Population dynamics and income distribution
• The evolution of inequality over time and with respect to age
• Health inequality in old age
• The effects of social security systems and pension schemes on inequality
• Policies to cope with demographic challenges and the challenges posed by inequality
• Family backgrounds and equality of opportunities
• Demographically induced poverty traps
• Effects of automation and the digital economy in ageing societies
• Flexible working time and careers, and their long-term implications
• The dynamics of inheritances, etc.

Researchers who seek to attend the workshop are invited to submit a full paper or at least a 1-page extended abstract directly to Klaus Prettner and Alfonso Sousa-Poza by Sept. 30, 2017.

Authors of accepted papers will be notified by the end of October and completed draft papers will be expected by Jan. 31, 2018. Economy airfare and accommodation will be provided to one author associated with each accepted paper. A selection of the presented papers will be published in the special issue; the best paper by an author below the age of 35 will receive an award and be made available online as a working paper.

Researchers who do not seek to attend the workshop are also invited to submit papers for the special issue. Those papers can be submitted directly online under “SI Inequality & Ageing” by May 31, 2018.

For complete details, please click on the link below to view the PDF.