Old age takes its toll: Long-run projections of health-related public expenditure in Luxembourg

Abstract: This paper simulates long-term trends in Luxembourg’s public expenditure on healthcare and on long-term care. We combine population projections with micro-simulations of individuals’health status that account for their demographic, socio-economic characteristics and their childhood circumstances. Model equations estimated on data from the SHARE survey and from several branches of Social Security provide a rich framework to study policy-relevant applications. We simulate publicexpenditure on healthcare and long-term care under different scenarios to evaluate the separate contributions of population ageing, costs of producing health-related services, and the distribution of health status across age cohorts. Results suggest that rising per capita expenditure on healthcare will mostly result from production costs, while rising expenditure on long-term care will mostly reflect population ageing.

Keywords: Ageing, Dynamic micro-simulation, Healthcare, Health-related public expenditure, Health

status, Long-term care, Luxembourg, SHARE.

JEL Classification: D3, H30, I10, I12.