Elsevier

Journal of Health Economics

Volume 19, Issue 5, September 2000, Pages 679-695
Journal of Health Economics

Health care expenditure in the last months of life

https://doi.org/10.1016/S0167-6296(00)00039-4Get rights and content

Abstract

In OECD countries, a considerable share of health care expenditure (HCE) is spent for the care of the terminally ill. This paper derives the demand for HCE in the last 2 years of life from a model that accounts for age, mortality risk and wealth. The empirical tests are based on data of deceased members of a major Swiss sick fund. The empirical evidence confirms most of the hypotheses derived from the model, i.e., (i) HCE increases with closeness to death, (ii) for retired individuals, HCE decreases with age, and (iii) low-income individuals, as compared to high-income individuals, incur lower HCE in the last months of life.

Introduction

The cost of treating the terminally ill is sometimes blamed for the steady increase in health care costs. Indeed, the so-called cost of dying is substantial. As Lubitz and Riley (1993) report for the United States, 30% of the total Medicare budget is paid out on behalf of persons in their last year of life. Spending per decedent is about seven times larger than per survivor. For Switzerland, health care expenditure (HCE) of the terminally ill is comparably high, as samples of two health insurance companies show (cf. Zweifel et al., 1999). Payments for persons in their last year of life constitute 22% and 18% of the total health care cost of retired persons, depending on the sample. The average ratio of per capita expenditure between decedents and survivors equals 5.6:1.1

Besides its size, the path of HCE in the last year of life is exceptional as well. One observes a steady increase, accentuated by a surge in the last quarter of life. In the study by Lubitz and Riley (1993), 62% of all Medicare costs referring to the last year of life were incurred in the last quarter, compared to 10% in the first quarter. In Switzerland, the difference is less accentuated (42–48% as opposed to 14–18%, depending on the sample (cf. Zweifel et al., 1999; Table 1)).

A third characteristic of HCE in the last months of life is age dependency. Baker et al. (1995) reported that cost in the last 2 years of life for persons who died at 101 years of age or older was 37% of those incurred by persons who died at 70. In the Swiss samples, we found a similar pattern with respect to age and HCE in the last 2 years of life.

The present paper presents a model designed to explain these three characteristics of HCE in the last months of life. It derives the demand for health care services in the last months of life from a life-cycle model that formalises the trade-off between utility of living and utility of consumption. Section 2 deduces the willingness to pay for a change in the mortality schedule and shows how willingness to pay is affected by age, wealth and the risk of death. Section 3 presents the data and the hypotheses referring to the impact of age, closeness to death, wealth and insurance coverage on HCE. Section 4 discusses the empirical results, and Section 5 concludes.

Section snippets

The model

We assume that consumption and age are the only arguments in the utility function of a representative household. By u[c(t)], we denote the utility of being alive at age t, given consumption c. The twice differentiable utility function u, determined up to a multiplicative factor, is positive, increasing and strictly concave. Furthermore, we assume that there is no bequest motive, and that a household of age a chooses its consumption path by maximising expected residual lifetime welfareEU(a)=a

Data and hypotheses

The present study is based on individual data of 415 deceased persons from a sample of more than 6000 members of a major Swiss health insurance company. The data include HCE, gender and age, as well as specifics of the insurance policy of the individuals. A majority of the individuals (346) were aged 65 or more at the time of their death (see Table 1). For simplicity, for each individual the expenditure records covering the last 2 years of life were aggregated into eight quarterly observations.

Estimation results

Table 2 presents the estimated coefficients and their standard errors (in parentheses) as well as general statistics of the regressions for both the total sample and the elderly subsample, which excludes individuals aged 64 and less at their date of death. The first set of results refers to the regressions where quarterly HCE in the last 2 years of life is the dependent variable. The second regression refers to the logarithms of HCE and implements a two-stage approach (Heckman, 1989) to capture

Conclusion

HCE of persons in the last months of life shows a clear increase towards death. Moreover, there is evidence that cost of dying is higher for young than for elderly persons Emanuel and Emanuel, 1994, Lamers and van Vliet, 1998. Finally, Baker et al. (1995) found, while studying Medicare payments, that HCE in the last 2 years of life decreases with age. All three observations can be explained by the theory of life saving (Schelling, 1968). Willingness to pay for survival over the life cycle is

Acknowledgements

The paper was presented at the inaugural conference of the International Health Economics Association, Vancouver, Canada, May 19–23, 1996, and the Annual Meeting of the Verein of Socialpolitik, Kassel, September 25–27, 1996. We thank the participants as well as two anonymous referees for their helpful comments, and the Swiss National Science Foundation for financial support under grant 4032-035660.

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