A Framework For Long-Term Actuarial Projections Of Health Care Costs

Abstract

Ever-expanding life expectancy is increasing the size of elderly populations with profound social and economic consequences for developed nations, including future cost of their health care systems. Most existing long-term health care cost projections are driven mainly by changing demographics (aging populations). This simplified approach fails to recognize the many variables, and complicated interactions among them, affecting the future of health, health care, and health care costs. This study presents a framework incorporating key health care cost drivers. Using the framework, the study then introduces three plausible futures for health care along with broad, nonmodeled estimates of their costs that point to a very wide range of potential future costs. By taking the next step and building actuarial models based on the framework presented in this study, actuaries and health economists can create a powerful tool for health policymakers and health officials to better understand the long-term consequences of decisions taken during their stewardship of health care systems.