By Richard Jackson, Global Aging Institute
The aging of the United States threatens to usher in a new era of relentless fiscal pressure, economic stagnation, and growing intergenerational conflict that pits the interests of the old against those of the young. Or does it? Long-term fiscal and economic projections generally assume a continuation of today’s behaviors and policies. Their purpose is to show us what is likely to happen if we stay on our current course, and they often fail to anticipate developments that could fundamentally alter the outcome.
Some optimists believe that improvements in the health of the elderly could be a potential game-changer. For one thing, better health at older ages could facilitate longer work lives, which would reduce fiscal burdens and boost economic growth. For another, it seems reasonable to assume that it could lower health-care spending beneath current projections, further mitigating the costs of population aging.
While a final verdict is still out, it is not too soon to reach some tentative conclusions. There is indeed room for optimism that improvements in the health of the elderly will facilitate longer work lives. Unfortunately, there is much less reason to believe that they alone would have much impact on health-care spending. Whatever happens to the health of the elderly, absent broader reform of the health-care financing and delivery system, spending is likely to remain on a steep upward trajectory.
A QUARTERLY SERIES
The Shape of Things to Come
Over the next few decades, the aging of America promises to have a profound effect on the size and shape of our government, the dynamism of our economy, and even our place in the world order. The Concord Coalition and author Richard Jackson of the Global Aging Institute (GAI) have joined forces to produce a quarterly issue brief series that explores the fiscal, economic, social, and geopolitical implications of the aging of America. Although the series is U.S. focused, it also touches on the aging challenge in countries around the world and draws lessons from their experience. Concord and GAI hope that it will inform the debate over the aging of America and help to push it in a constructive direction.
Two Models of Aging and Health
Experts have long debated whether health spans will rise along with life spans as the population ages. One school of thought, which subscribes to the “compression of morbidity” thesis, believes that health spans will rise as fast or faster than life spans until, eventually, most of the ills of old age are relegated to a relatively brief period of declining vigor at the very end of life. Another school of thought, which subscribes to what is sometimes called the “failure of success” thesis, argues that the principal effect of modern medicine is to extend people’s lives without restoring them to full health—and that, as lifespans rise, so too will rates of chronic morbidity and disability.
Much hinges on which thesis is correct. As populations in the traditional working years grow more slowly or contract in decades to come, aging societies will need to extend work lives, and health is a major determinant of both labor supply and labor quality. Greater health at older ages would both allow more of the elderly to work and increase the output of those who do, since healthier workers are more productive workers. Together with greater life expectancy, greater health expectancy could also increase incentives to invest in human capital, which may further boost output among workers of all ages.
Aging societies will also need to control health-care costs, and the elderly are disproportionate consumers of health-care services. As countries move through the “epidemiological transition,” chronic diseases replace infectious diseases as the primary cause of morbidity and mortality. Since the elderly are much more likely to suffer from chronic diseases than the nonelderly are, health-care consumption rises steeply with age. In the United States, the elderly consume roughly three times as much per capita in acute-care services as the nonelderly and roughly twenty times as much in long-term care services. The elderly, moreover are the fastest growing segment of the population, the older the elderly are the more health care they consume, and the oldest elderly age groups are the fastest growing of all. Together, these cost multipliers make health-care spending the most potentially explosive dimension of old-age dependency. (See figures 1-4.)
The Case for Optimism
The good news is that rates of disability among the U.S. elderly have declined dramatically over the past few decades, prompting some experts to conclude that a compression of morbidity is under way. According to the landmark study, the share of U.S. adults aged 65 and over with a disability fell from 26.5 to 19.0 percent between 1982 and 2005, a drop of more than one-quarter. (See figure 5.) At least in part as a result, the rate of nursing home residence also fell over the same period, from 7.5 to 4.0 percent.  A large body of research establishes that many other developed countries have also experienced significant declines in elderly disability since the 1980s. According to the WHO, healthy life expectancy at age 60, as measured by years of remaining life lived free from disability, rose by four to five years between 1990 and 2015 in most developed countries, from France, Italy and Sweden to Germany and Japan. (See table 1.) In all of these countries, moreover, the increase in healthy life expectancy was greater than the increase in total life expectancy.
Three Big Caveats
This good news, however, comes with three big caveats, the first being that past trends in disability may not be a good predictor of future trends. Just because disability is declining among today’s elderly does not mean that it will be declining among tomorrow’s, who will belong to a different generation with different lifetime experiences. The best predictor of the health of 75 year-olds thirty years from now may not be the health of today’s 75 year-olds, but the health of today’s 45 year-olds. And here the trends are worrisome. In recent years, the obesity epidemic, along with other destructive lifestyle choices, has put a growing share of the midlife population in the United States at risk of premature morbidity, disability, and death. If the health of midlife adults continues to deteriorate, the downward trend in elderly disability rates could stall or even reverse as younger cohorts begin to cross the threshold of old age. Indeed, some recent U.S. evidence suggests that this is already happening.
Less disability, moreover, does not necessarily mean less morbidity. People are classified as disabled if they are unable to perform one or more “activities of daily living” (such as bathing or dressing) or one or more “instrumental activities of daily living” (such as shopping or managing money). Even as the share of the elderly with such limitations declines, the share with expensive medical conditions could be rising. There is evidence that this is exactly what is happening. Although disability rates among the U.S. elderly have fallen over the past few decades, the share of the elderly with serious chronic conditions, from diabetes to hypertension and heart disease, has been flat or rising. (See table 2.) Researchers have also documented the same divergent trends—falling disability and flat or rising chronic morbidity—in a number of other developed countries.
It would appear that what we have been experiencing is not so much a compression of morbidity as a compression of disability. If so, the implications for future health-care spending may be precisely the opposite of what the optimists assume. While it may seem reasonable to suppose that falling rates of elderly disability would lead to lower health-care spending, perhaps it is the high and rising volume of health-care services the elderly consume that is the very reason they have become less disabled. In other words, Grandma may be getting around better these days, but she is doing so because she is seeing the doctor as often or more often than before.
Finally, other cost drivers may be more important than the health of the elderly. If falling disability really did portend slower future cost growth, we might expect it to have moderated past cost growth as well. Yet real per capita health-care spending has continued to rise rapidly even as rates of elderly disability have declined. (See figure 6.) Clearly, there are other forces at work, from the continuous introduction of new medical technologies to the public’s rising expectations about care and cure. “Good health,” moreover, is not a fixed goal. It is a subjective standard that rises over time as societies become more affluent, less tolerant of bad health or risk, and more secular—that is, more apt to see happiness in the here and now as life’s ultimate goal. As this expanding concept of health interacts with medical advances, it is transforming the practice of medicine. While once it meant an occasional visit to the doctor or hospital, it is fast becoming a lifelong process of diagnostics and fine-tuning in which any extra dollar, euro, or yen spent is likely to confer some perceived benefit.
Some Tentative Conclusions
When it comes to the prospects for extending work lives, trends in the health of the elderly suggest that there is room for optimism. It is certainly possible to imagine a future in which increases in disability-free life expectancy lead to later retirement ages and longer work lives, offsetting much of the demographic drag of population aging on economic growth. If what is sometimes called “productive aging” becomes the rule rather than the exception, this alone would be a game-changer. However, there is also cause for concern, especially in the United States, where the worsening health profile of midlife adults threatens to reverse recent declines in elderly disability rates. New investments in the health of the elderly, and perhaps more importantly of the future elderly, may be needed to ensure a happy outcome. So too may a wide range of economic and social policy responses that reach well beyond the traditional realm of health policy.
As for health-care spending, there is little evidence that improvements in the health of the elderly can do much to slow its growth. Despite significant variations in healthy life expectancy across the developed countries, the per capita ratio of acute-care spending on the old to spending on the young is remarkably similar. (See table 3.) This is not to say that the United States cannot substantially reduce future health-care spending beneath current projections. However, it does suggest that doing so would require addressing the underlying cost drivers that are pushing up real age-adjusted per capita spending for everyone, old and young alike. This in turn would likely require broader reform of the health-care financing and delivery system, and in particular the imposition of some sort of budget constraint that compels patients and providers to make meaningful cost-benefit tradeoffs.
The prospects for savings in long-term care may be better than in acute care, but are still far from assured. Improvements in the health of the elderly would clearly slow the growth in demand for long-term care. Whether that slower growth will in turn translate into a lower burden on government budgets is much less certain. After all, the demand for formal long-term care services is highly sensitive to a host of broader socioeconomic factors, and especially the strength of extended families. Today’s elders typically have several surviving children. But tomorrow’s elders will be much more likely to have only one child or no child—or to be never-married, widowed, or divorced. As family size shrinks in the decades to come, the burden on family caregivers could rise even if the overall demand for long-term care falls. Countries like the United States that rely heavily on families to provide long-term care are likely to see growing pressure for government to assume greater responsibility.
It is sometimes said that sixty is the new forty in the developed world. Looking to the future, it is even possible that eighty will someday be the new sixty. Such a development should be hoped for and welcomed for the potential benefits to individual elders and their families as well as to government budgets and the national economy. It is a fantasy, however, to suppose that improvements in the health of the elderly can erase the cost of the coming age wave. Difficult choices will still be required.
 For the classic formulation of the compression of morbidity thesis, see James F. Fries, “Aging, Natural Death, and the Compression of Morbidity,” New England Journal of Medicine 303 (1980) and James F. Fries, “The Compression of Morbidity,” Milbank Memorial Fund Quarterly (Summer 1983). For the classic formulation of the “failure of success” thesis, see E. M. Gruenberg, “The Failure of Success,” Milbank Memorial Fund Quarterly (Summer 1977) and Lois M. Verbrugge, “Longer Life But Worsening Health?” Milbank Memorial Fund Quarterly (Summer 1984). For a review of the evidence, see Somnath Chatterji et al., “Health, Functioning, and Disability in Older Adults: Current Status and Future Implications,” The Lancet 385, no. 9967 (February 2015) and Eileen M. Crimmins, “Lifespan and Healthspan: Past, Present, and Promise,” The Gerontologist 55, no. 6 (2015).
 Kenneth G. Manton, Xi-Liang Gu, and Vicki L. Lamb, “Change in Chronic Disability from 1982 to 2004-2005 as Measured by Long-Term Changes in Function and Health in the U.S. Elderly Population,” Proceedings of the National Academy of Sciences 103, no. 48 (November 2006). Many other studies have also documented declines in disability rates among the U.S. elderly. See, for instance, David M. Cutler, Kaushik Ghosh, and Mary Beth Landrum, “Evidence for Significant Compression of Morbidity in the Elderly U.S. Population,” NBER Working Paper no.19268 (Cambridge, MA: National Bureau of Economic Research, July 2013) and Eric Stallard, “Compression of Morbidity and Mortality: New Perspectives,” North American Actuarial Journal 20, no. 4 (2016).
 See Danan Gu, Rosa Gomez-Redondo, and Matthew E. Dupre, “Studying Disability Trends in Aging Populations,” Journal of Cross-Cultural Gerontology 30, no. 1 (November 2014).
 See Shih-Fan Lin et al., “Trends in Older Adult Disability: Exploring Age, Period, and Cohort Effects,” American Journal of Public Health 102, no. 11 (November 2010) and Yiqun Chen and Frank A. Sloan, “Explaining Disability Trends in the U.S. Elderly and Near-Elderly Population,” Health Services Research 50, no. 5 (October 2015).
 See, among others, Eileen M. Crimmins, “Trends in the Health of the Elderly,” Annual Review of Public Health 25 (2004); Eileen M. Crimmins and Hiram Beltrán-Sánchez, “Mortality and Morbidity Trends: Is There Compression of Morbidity?” Journal of Gerontology: Social Sciences 66B, no.1 (January 2011); Dörte Heger and Ingo W. K. Kolodziej, “Changes in Morbidity over Time: Evidence from Europe,” Ruhr Economics Papers no. 640 (Bochum, Germany: Ruhr-Universität Bochum, 2016); and Björn Lindgren, “The Rise in Life Expectancy, Health Trends among the Elderly, and the Demand for Health and Social Care,” Konjunktur Institute Working Paper no. 142 (Stockholm: National Institute of Economic Research, March 2016).