Introduction

One of the areas where population ageing will be particularly relevant is health care expenditure. National health expenditure already takes a substantial share of GDP in most developed countries. During the last few decades, it has increased across OECD countries. In 2003, OECD countries devoted, on average, 8.8% of their GDP to health spending, up from 7.1% in 1990 and just over 5% in 1970. However, the share of GDP allocated to health spending varies considerably across countries, ranging from less than 6% in the Slovak Republic, through 7.7% in Spain to 15% in the United States in 2003 (OECD, 2005a). Accelerating ageing of the population forecast for the first half of this century poses a serious challenge for the sustainability of the current social welfare system in Europe.

The direct link between population ageing and national health expenditure is due to the fact that per-capita health spending increases with age. The estimated ratio of per-capita health spending for a person aged 65 or over to that for a person under 65 years ranges between 2.5 and 5 in developed countries (see, for example, Anderson and Hussey, 2000), and within the elderly (aged 65 or greater) population a sharp increase in health expenditure with age is also observed in all countries (Economic Policy Committee, 2001). Increasing health spending with age accompanied by population ageing implies larger aggregate health expenditure in the future, even when age-specific per-capita expenditures stay constant.