Economic effects of healthy ageing: functional limitation, forgone wages, and medical and long-term care costs

Abstract

This study aims to estimate the potential economic benefits of healthy ageing by obtaining estimates of the economic losses generated by functional limitations among middle-aged and older people. Utilising two data sources retrieved from nationally representative samples of the Japanese people, we analysed the association between functional limitation and economic indicators, including labour market outcomes, savings, investment, consumption, and unpaid activities among individuals aged ≥ 60. Using the estimated parameters from our micro-econometric analyses and the official statistics by the Japanese government and a previous study, we calculated the financial costs that can be averted if healthy ageing is achieved as foregone wages and formal medical/long-term care costs incurred by functional limitations. Our micro-econometric analyses found that functional limitation was associated with a 3% point increase in retirement probability, with a stronger association among those aged 60–69. Moreover, functional limitation was linked with higher total health spending and less active involvement in domestic work. Foregone wages generated by functional limitation were estimated to be approximately USD 266.4 million, driven mainly by individuals in their 60s. Long-term care costs, rather than medical care costs, for older people aged ≥ 85 accounted for most of the additional costs, indicating that the estimated medical and long-term costs generated by functional limitations were approximately USD 72.7 billion. Health interventions can yield economic benefits by preventing exits from the labour market due to health issues and reducing medical and long-term care costs.