"steeping" of health expenditure profiles

Abstract

If health care expenditure for the elderly grows faster than for younger people, the expenditure profiles become steeper - we call that steeping. Three instruments for measuring steeping are presented: (1) trend of the relation between per capita expenditure of the old and the young; (2) comparing the linear slopes of per capita expenditure in age groups; (3) trend in parameters of nonlinear modelling of expenditure profiles. Using data of the largest German private health insurer over a period of 18 years, steeping could be observed by all three methods in most examined insurance plans. There are some hints that steeping also occurs in Germany's social health insurance system. The impact of steeping on the sustainability of the health system is discussed. Consequences for the calculation methods in a capital-funded health insurance system and for the implicit inter-generational contract within a pay-as-you-go financed social health insurance system are analysed. The link between steeping and the topic of the red herring discussion is elaborated. © 2006 The International Association for the Study of Insurance Economics.