Cross-National Implications of ALE/LE Ratio Differences

ALE/LE ratio calculations have importance not only for the U.S. economy but also in making economic compar­isons cross-nationally for economically advanced countries. Japan is currently the most rapidly aging population in modern industrial nations.

The Japanese fertility rate is already so low (1.3 overall; 1.1 in Tokyo) that Japan will soon begin to experience a rapid contraction in popula­tion size (from a peak of 127million persons in 2006 to between 110 to 100 million persons by 2050), as may the Russian Federation population and several other European (e.g. Italy) and Eastern European (e.g. Latvia) nation states.

This aging-population health dynamic provides the double burden on future economic growth and techno­logical innovation that large proportions of the national population in developed countries will be retired (under current labor and tax law and economic conventions) and that growing proportions of this elderly population will be extremely elderly (e.g., aged 85+ and 95+) and thus require significant LTC - consequently promoting rapid growth of LTC service industries and requiring large amounts of human capital - but, without significant bio­medical research, perhaps not adding significant value to the productivity (measured in terms of improved health) of LTC.

This will be true if LTC continues to be defined primarily as a labor-intensive residential warehouse ser­vice function for what has been previously assumed to be an economically non-productive very elderly population with little capacity for rehabilitation (e.g., the hypotheti­cal consequences of Baumol’s disease in a labor-intense service industry).

Such negative conceptions of the ability of LTC to change population health conditions are beginning to be successfully challenged - at least in the United States. As originally conceived, post-World War II nursing home care was viewed primarily as a residential, not a true medical, service option. Concerns were often expressed about the quality of medical care received in nursing homes - especially for patients whose care was primarily funded by state Medicaid programs.

The Balanced Budget Act of 1997 imposed a prospective payment formula for Medicare-reimbursed skilled nursing facilities (RUGS-III - or Resource Utilization Groups Version III) that required fixed amounts (in minutes) of rehabilitation services be provided for skilled nursing facility (SNF) residents with specific morbidity and disability case mixes.

The net effect of this policy was that discharge rates from acute care hospitals to SNFs were reduced by 15% and discharges from SNFs increased - without a cor­responding increase in the U.S. community-resident severely disabled population. Under the Medicare reim­bursement formulas, per capita payments (inflation- adjusted) were found in the 1982 to 2004 NLTCS to have increased over time for severely disabled persons and to have declined for nondisabled persons (Manton et al, 2006a).

This illustrates that it is possible to increase productivity on a national level (here measured by the expenditures necessary to achieve a unit of disability reduction), even in LTC facilities for elderly residents, if efficient provision of existing rehabilitation services is emphasized. This may increase the rate at which patients can be returned to independent living and has been fur­ther promoted by the recent emphasis (in part due to the Olmstead court decision in 1999) on Home- and Com­munity-based waivers for LTC within the U.S. Medicaid program.

The problem is that few other economically developed countries have been as successful as the United States in redefining the LTC system and in intervening in the health and function of the elderly and oldest-old popula­tion. China will shortly face this problem (i.e., rapid growth in the demand for LTC) but, with past government- mandated restrictions on fertility rates, without the human capital historically available in China from traditional family sources to help solve it.

The World Bank has determined that if life expectancy and health in Russia do not increase to the levels observed in the rest of Europe, the Russian human capital situation may serve to severely depress its future rate of economic expansion - GDP growth - despite its economically dominant position in terms of natural resources.

The effects of these recent morbidity and disability trends are enhanced by recent economic, demographic, and epidemiological conditions and fertility rates in dif­ferent countries - but in very different ways. In the United States, the post-World War II baby boom cohorts of 1946 to 1964 were both preceded by a birth dearth due to the Great Depression and World War II - and then again followed by a birth dearth.

Part of the recent reductions in fertility in the United States (and Canada) is due to the increasing participation of females in higher education, professional careers, and the labor force, with a conse­quent delaying of first births until later ages. In China, human resource problems may result due to population aging because of the one-child, one-family policy enhanced by the current Chinese pattern for LTC deliv­ery based heavily on the extended family.

In the United States, the outline of a preferred public health and health-care systems approach, by intervening directly in the health and functional consequences of the individual’s aging processes to expand the proportion of the total life span that can be expected to be spent in an active and economically productive state, is only begin­ning to be consciously elaborated as part of a federal policy initiative to help maintain U.S. global economic competitiveness (Manton et al, 2007).

Such a plan neces­sarily involves significant investment in biomedical research, so disability rate declines can, in the future, occur at very advanced ages (e.g., above age 95), where the prevalence of chronic disability and loss of social independence is currently the highest. It also requires retraining and other human capital enhancement activ­ities, as envisioned in the Lisbon Agenda.

The fact that the decline in U.S. chronic disability prevalence rates has averaged 1.5% per annum from 1982 to 2004, and the per annum rate has continued its acceleration of decline to 2004 to 2.2% per annum 1999 to 2004 (Manton et al., 2006a), suggests that this strategy is functioning well in the United States in dealing with the projected large increases in Medicare and Medicaid expenditures expected to be initiated starting in 2010 with the passing of age 65 by the initial post-World War II baby boom cohorts.

By 2080, the combination of Medi­care and Medicaid is currently projected to consume 24% of GDP - compared to only 7% for Social Security. One set of projections by Manton et al. (2007), based on modifications of the economic growth models of Romer, Hall and Jones, and Jones and Williams, suggests that increased investment in biomedical and other research might reduce the proportion of GDP consumed by Medi­care and Medicaid to 12% (i.e., a reduction by half from the 24% projected to be consumed in 2080).

This reduc­tion would be achieved by (1) stimulating the rate of GDP growth by better maintenance of human capital and (2) slowing of the rate of growth of health-care costs by the lagged effect of increased Medicare expenditures in improving health. The latter argument holds if the period projected to be spent chronically disabled by indi­viduals increases more slowly than the rate of increase in total life expectancy - as has been observed by Manton et al. (2006a, 2006b) using the 1982 to 2004 NLTCS.