How will income security and health care financing be affected by population aging; how should they change? An International
PerspectiveAndrew Mason
University of Hawaii at Manoa andThe East-West Center
Overview
• How do different societies provide for the economic needs of their elderly?
• Primarily a descriptive exercise relying on National Transfer Account data.– Health consumption and its finance– Labor income of older individuals– Funding of the lifecycle deficit, i.e., the gap
between consumption and labor income.
The NTA Flow Account Identity
• Inflows– Labor Income– Asset Income– Transfer Inflows
• Outflows– Consumption– Saving– Transfer Outflows
Inflows Outflows
( ) ( ) ( ) ( ) ( ) ( )l aY a Y a a C a S a a
Lifecycle Deficit Asset-based Reallocations Net Transfers
Age Reallocations
( ) ( ) ( ) ( ) ( ) ( )l aC a Y a Y a S a a a
Source: Mason, Lee, et al., 2009; Lee, Lee, and Mason, 2008.
0
1
2
3
4
5
6
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90+
Age
Mil
lion
yen
(m
easu
red
in 2
000
cons
tant
pri
ce)
Figure 5. Age-specific profiles of per capita consumption and production: Japan, 1984-2004
Labor income 2004Labor income 1999
Labor income 1994
Labor income 1989
Labor income 1984
Consumption 2004
Consumption 1999
Consumption 1994
Consumption 1999
Consumption 1984
Source: Ogawa, Chawla, and Matsukura forthcoming.
Per capita LCD at older ages has increased substantially during the last 20 years. Japan is also aging rapidly; hence, growth in the total
LCD for elderly has been very rapid.
Pattern in Japan and Elsewhere Raises Two Important Questions
• What steps should be taken to control health care spending which accounts for most of the increase of consumption at older ages?
• Can policies raise the labor income of the elderly? – Age at retirement: Gruber and Wise– Productivity of older workers
Per Capita Health Consumption, Japan, 1984-2004
0
500000
1000000
1500000
2000000
2500000
0 8 16 24 32 40 48 56 64 72 80 88
1984
1989
1994
1999
2004
2004a
Note: Long-term care introduced in early 2000s included in 2004a.
Publicly Funded Health Consumption, Per Capita Values, Age 55-90+
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
55 60 65 70 75 80 85 90
Rel
ativ
e to
mea
n Y
l(30
-49)
Austria
Brazil
Chile
China
Costa Rica
Finland
Germany
Hungary
Japan
Mexico
S Korea
Slovenia
Taiwan
Uruguay
US
Source: www.ntaccounts.org.
Private Health Consumption, Per Capita Values, Age 55-90+
0
0.05
0.1
0.15
0.2
0.25
0.3
55 60 65 70 75 80 85 90
Rel
ativ
e to
mea
n Y
l(30
-49)
Austria
Brazil
Chile
China
Costa Rica
Finland
Germany
Hungary
Japan
Mexico
S Korea
Slovenia
Taiwan
Uruguay
US
Source: www.ntaccounts.org.
Health Care Spending, Synthetic Cohort, 55+
0 2 4 6 8
Austria
Brazil
Chile
China
Costa Rica
Finland
Germany
Hungary
Japan
Mexico
S Korea
Slovenia
Taiwan
Uruguay
US
Relative to Yl(30-49)
Public
Private
Note: Synthetic cohort values calculated using L(x)/L(55) using the US2000 life table for both sexes combined. Health spending data: www.ntaccounts.org.
Summary
• Public spending on health in the US is similar to that in other industrialized countries, e.g., Japan and Germany: high and steeply increasing with age.
• Private spending on health is more important in the US and some developing countries than in other industrialized countries.
• The rise in private spending with age in the US is very steep, but not so elsewhere.
Labor Income
Labor Income as a Percentage of Consumption for 65+ (Above Average)
38.9
35.5
34.2
32.5
28.1
24.2
23.8
22.9
21.3
20.6
17.4
16.9
0.0 10.0 20.0 30.0 40.0 50.0
Philippines (1999)
China (2002)
Kenya (1994)
India (2004)
Mexico (2004)
Costa Rica (2004)
S.Korea (2000)
Indonesia (2005)
Chile (1997)
Brazil (1996)
Thailand (2004)
Average
Source: S-H Lee 2009.
Labor Income as a Percentage of Consumption for 65+ (Below Average)
16.9
15.4
14.7
11.7
10.9
5.8
4.7
4.1
3.9
3.5
3.2
1.8
0.0 5.0 10.0 15.0 20.0
Average
US (2003)
Taiw an (1998)
Japan (2004)
Hungary (2005)
Spain (2000)
Sw eden (2003)
Finland (2004)
France (2001)
Slovenia (2004)
Germany (2003)
Austria (2000)
Source: S-H Lee 2009.
Summary: Labor Income
• Strongly related to level of development• Very low in Europe and compared with Japan,
Taiwan, and the US. • Strong disincentives to work due to tax and
pension provisions in many European countries.• Compulsory retirement except in the US.• Low labor income is partly low participation, but
also wages and productivity are very low.
Reallocation Systems for the Elderly
• Lifecycle Deficit is funded in three important ways – Asset-based reallocations
• Asset income • Dis-saving• Almost all is asset income; dis-saving is rarely observed.
– Net public transfers• Value of all good and services received through the public sector• Cash transfers, e.g., pensions.• Less taxes paid
– Net private transfers• Net Inter-household transfers• Net intra-household transfers
Austria
Costa Rica
Japan
Finland
Mexico
Philippines
S. Korea
Taiwan
ThailandUS
Germany
1/3
1/3
1/3
2/3
2/3
2/3
Assets
PublicTransfers
FamilyTransfers
Reallocations as a share of lifecycle deficit, 65 and older, selected countries, recent year.
Source: Lee, Lee & Mason (2007)
6570
75 80
85
90+
1/3
1/3
1/3
2/3
2/3
2/3
Assets
PublicTransfers
FamilyTransfers
United States (2003)
Source: Salas & Rachelis (2008)
70
75
80
85
90+
1/3
1/3
1/3
2/3
2/3
2/3
Assets
PublicTransfers
FamilyTransfers
Philippines (1999)
Source: Chawla (2008)
65
70
75
80
85
90+
1/3
1/3
1/3
2/3
2/3
2/3
Assets
PublicTransfers
FamilyTransfers
Thailand (2004)
Source: Mejia-Guevara (2008)
70
75
80
85
90+
1/3
1/3
1/3
2/3
2/3
2/3
Assets
PublicTransfers
FamilyTransfers
Mexico (2004)
Source: National Transfer Accounts
65
70
7580
8590+
1/3
1/3
1/3
2/3
2/3
2/3
Assets
PublicTransfers
FamilyTransfers
South Korea (2000)
Source: Mason, Lee, Tung, Lai & Miller (forthcoming)
65
70
7580
85
90+
1/3
1/3
1/3
2/3
2/3
2/3
Assets
PublicTransfers
FamilyTransfers
Taiwan (1998)
Source: Ogawa, Mason, Chawla & Matsukura (2008)
65
70
75
80
85
90+
1/3
1/3
1/3
2/3
2/3
2/3
Assets
PublicTransfers
FamilyTransfers
Japan (2004)
Source: Rosero-Bixby & Robles (2008)
65
70
7580
8589
1/3
1/3
1/3
2/3
2/3
2/3
Assets
PublicTransfers
FamilyTransfers
Costa Rica (2004)
Source: Risto & Vanne (2008)
65
70 8089
75
1/3
1/3
1/3
2/3
2/3
2/3
Assets
PublicTransfers
FamilyTransfers
Finland (2004)
Source: Kluge (forthcoming)
65
7075
80
85
90+
1/3
1/3
1/3
2/3
2/3
2/3
Assets
PublicTransfers
FamilyTransfers
Germany (2003)
Source: Fuernkranz-Prskawetz & Sambt (2008)
6570
8085
90+
75
1/3
1/3
1/3
2/3
2/3
2/3
Assets
PublicTransfers
FamilyTransfers
Austria (2000)
Patterns and Generalizations• In industrialized countries familial transfers are modest and typically
downward, i.e., from the elderly to their children and grandchildren. • In Latin American countries, familial transfers are also downward. • Familial transfers are an important source of support for elderly in
Asian countries. • Developing countries rely more on asset-based reallocations than
industrialized countries. • The US relies more on asset-based reallocations than other
industrialized countries. • Public transfers are much more important in Europe and Japan
than the US.• Public transfers are much more important in Latin America than in
developing Asia.
Age Patterns
• Asset-based reallocations decline and transfers increase with age (except in Finland)
• Familial transfers increase in Philippines, Thailand, Mexico, S. Korea, Costa Rica, and Japan.
• Public transfers increase in Austria, Germany, and the US.
• In Taiwan, public transfers increase among young elderly and familial transfers among old elderly.
Reallocation System Issues
• Incentive and dis-incentive effects on– Retirement– Saving– Human capital investment
• Do systems vary in their risk-sharing features?
• Which systems are most vulnerable to population aging?
The Endh