Main Causes of Population Aging and its Consequences on
the provision of Healthcare
Main Causes of Aging 2
Increase in life expectancy 2
Declining fertility rates 3
Consequences of Population Aging on the Provision of Healthcare 4
Effects on Healthcare in Japan 4
Effects on Healthcare in the United States 5
Policy Solutions to Population Aging 5
Our world is faced today with a major dilemma. On one hand life expectancy has
improved globally but on the other hand fertility rates are declining in every country. At a first
glance living longer and having fewer children seems to be overall beneficial as you can
experience more in your lifetime and avoid additional household budget pressure through more
children care as well. Unfortunately, the stark reality is that when combining both trends our
population is aging. By population aging it meant that the median age of the population is rising.
In short, the age demographic is shifting worldwide since there are fewer children born and adults
are expected to live longer. In this paper we will examine the root causes of population aging and
will examine its consequences to the provision of healthcare. We will be addressing the major
issue that national healthcare systems are facing as a result of population aging. For the purpose
of this paper we will be focusing on the effects of aging on the healthcare systems in Japan and
the United States as these two countries are prime example in the given context as they show how
widespread this phenomena is globally. Lastly, we will be discussing potential policies that can
be implemented to stop the consequences of aging to the provision of healthcare.
2. Main Causes of Aging
2.1. Increase in life expectancy
Life expectancy during the 19th century was much lower when compared today. By 1870
the highest life expectancy in the world was in Europe with 36 years and the lowest in Asian and
Africa at 26 years. Globally the life expectancy by the end of the 19th century was at 29 years. As
of the middle of the 20th century, the life expectancy has risen significantly in the developed
world. By 1950 the world life expectancy was at 48 years and it would rise up to 71.4 by 2015.
Europe still remains the region with the highest life expectancy as by 2014 this was at 80.67
years. The most impressive increase has been in Africa, which has only seen an increase until
1920, where its population is expected to live until the age of 60.1 With such increases in life
expectancy worldwide it has been predicted that by 2050 individuals aged 60 and older will be
the most common age group. The dramatic shift in the age demographics is most noticeable in a
1 Refer to Figure 1
population pyramid that shows the change in modal age groups.
2 In 2100 it is predicted that
22.3% of the world population will be aged 65 and over which is a significant increase from the
7.6% in 2010.3
This increase in life expectancy is mostly attributed to our increased understanding of
medicine and to major developments in medical technology in recent years that have lowered the
once high infant mortality rate.4 Worldwide around 180 out of 1,000 children (18%) died under
the age of 5 in 1960. However, the infant mortality rate has declined significantly as by 2005 we
reached a historically low level where only around 75 out of 1,000 children (7.5%) died under the
age of five.5 Innovations such as vaccines and clean drinking water have significantly lowered
the mortality rate of children by effectively eliminating common problems such as “smallpox,
scarlet fever, malaria, and cholera”6.
2.2. Declining fertility rates
Unfortunately, while life expectancy has substantially increased in developed countries,
the total fertility has fallen below the stable rate level. In order for a population to remain stable
across every generation, women need to give birth to around 2.1 children during her life “to
replace both her and the father in the population”7. This fertility rate is called the “replacement
fertility rate”8. While the high birth rate in the 19th century provided each generation with a
robust population, today birth rates have fallen drastically. From 1960 until 2015 the fertility rate
of most countries has decreased.9 Back in 1960 Mexico had the highest total fertility rate of 6.8.
Now the highest fertility rate is in India with 2.4. The largest decreases have been in China from
5.7 to 1.6 and Canada from 3.8 to 1.6.10
A theory, although disputed by some, why there were more births during the lifetime of a
woman was that children were “an effective form of savings by parents”
11. The children were
seen in the past as an investment as they could take care of their parents when they grow older.
2 Refer to Figure 2
3 The Economist. The world in 2100,
4 Bhattacharya, J et al, Health Economics, 405.
5 Refer to Figure 3
6 Bhattacharya, J et al, Health Economics, 405.
7 Ibid, 402.
9 Guinnane, T.W. The historical fertility transition: a guide for economists, 1 -20.
10 Refer to Figure 4
11 Bhattacharya, J et al, Health Economics, 406.
Fertility has declined because industrialization made it possible for children to be self-sustainable
and social insurance programs have provided income security when their parents got older
3. Consequences of Population Aging on the Provision of
Currently, there are 7 billion individuals in the world from which Asia and Africa
constitute a large proportion.12 If we continue at the same rate with both of these trends we are
expected to reach a population of 10 billion people.13 These significant changes in the future age
demographic of the world, especially, in Europe, will have a negative impact on the financing of
public health systems. The issue with health systems is that they were created with the optimistic
belief that generations are continuously growing and that each year young people will enter the
workforce to help pay for the expenses of older generations. Unless the right policies are put into
force the consequences of aging will have these programs bankrupt.
3.1. Effects on Healthcare in Japan
One of the starkest examples of a rapidly aging population is Japan. This country is one
of the fastest aging industrialized nation being forecasted to have 27.3% of its population to be
over 65 by 2025.14 The main reason why Japan’s population is aging so fast is due to its very low
fertility rate. In 2010 the fertility rate in Japan was “only 1.39 births per woman over her
lifetime”15. While for some nations it take over 100 years to have 14% of its population over 65,
in Japan this “transition happened in just 26 years”16. This rapid transition has negative effects on
Japan’s national insurance program. The countries’ long-term care insurance (LTCI) has been
created to handles home care, respite care and institutional care.17 People that are eligible for the
program have to be over 65 years or unable to perform activities of daily living (ADL’s). The
program is funded 10% as copayments by the enrollee and the rest of the 90% is financed half
through the LTCI premium revenue and the other half through national taxes.18 Although costs
associated with LTCI in 2000 was lower than what has been spent in previous years on the
12 Refer to Figure 5
13 Refer to Figure 6
14 National Institute of Population and Social Security Research. Population Projections for Japan: 2001-
15 Bhattacharya, J et al, Health Economics, 404.
16 Ibid, 403.
17 Matsuda, S. and Yamamoto, M. Long-term care insurance and integrated care for the aged in Japan, 6.
18 Refer to Figure 7
healthcare programs which it has replaced, the program faces sustainability problems as it cannot
adapt itself to the growing population of elderly people.19
3.2. Effects on Healthcare in the United States
As of 2010, it was estimated that there were around 40 million individuals aged 65 years
and older that lived in the U.S. It is estimated that by 2030 there will be over 70 million elderly
people which will lead to even more expenses in Medicare. Medical expenses are further
expected to increase sharply as by 2050 the number of the individuals will constitute 21.6% of the
The rise in expenditures are caused primarily by the aging population in US which
implies that there will be more individuals with health problems which will be more expensive to
take care of.21 Another factor for the increase in expenditures is that new medical technologies
will be introduced.22 These expenses of Medicare are not easily subsidized as tax collection is
slower than the rise in the elderly population. It is predicted that there will be 2.7 workers per
elderly by and a decrease to 2.2 by 2030.23 If this trends continues at this pace the Medicare Trust
Fund, containing the additional revenue gathered through tax, is forecasted to go bankrupt in
4. Policy Solutions to Population Aging
The two case studies outlined are some of many governments across the world that will
be faced with reforming their health care programs. Traditional models of financing where the
young contribute to the subsidization of care for the elderly should not be considered anymore as
a sustainable framework for the provision of healthcare. By taking into account the long term
challenges that come with trends in aging governments can reform their healthcare programs.
An opportunity to save on healthcare spending is to reform the end-of-life (EOL) care.
Most of the healthcare spending is given out at the end of a patient’s life. One notable example
has been that in 1990 30% of the resources of US Medicare have been given out to care of people
from which 5-6% died each year.25 The care given to patients turns out to be either wasteful or
19 Bhattacharya, J et al, Health Economics, 410.
20 Refer to Figure 8
21 He W. et al. 65+ in the United States: 2005. 10.
22 Shekelle P.G.et al. Identifying potential health care innovations for the future elderly, 67-76.
23 Bhattacharya, J et al, Health Economics, 408
24 Refer to Figure 9
25 Bhattacharya, J et al, Health Economics, 417.
prolongs their suffering. For these reasons policymakers have tried to find solutions that can cut
down the costs of EOL spending. One suggestion has been the introduction of palliative care
which focuses on the comfort in the last days of the patient’s life rather than providing medical
treatments aimed at stopping the disease from advancing. This type of care has not only the
potential of reducing costs but also of improving the overall welfare of dying patients. Another
policy proposal has been to have an advance directive which is a document where the patient
states their wishes concerning EOL care. The advance directive is legally binding and has to be
respected for instance in circumstances where the person does not want to be kept on life support
as a result of an accident. When comparing the two types of policy proposals it has been reported
in a survey conducted in 1990 that palliative care led to great reductions in savings, while the
advance directives did not result in significant savings.26
Alternatively, some nations have tried a more direct approach by reversing the declining
fertility rates. Through natalism the government is enacting policies that encourage childbirth.
Mostly parents are given financial support to parents of newborns. The nation which has
extensively promoted natalism is France. Ever since the 20th century, it has reduced the tax
liability of families and subsidizes childcare as well as education programs at the early stages of a
child’s life. While France’s fertility rate of 1.98 in 2008 was low compared to global standards it
became “one of Europe’s most fertile countries”.27
It has become a fact that the world population is aging continuously as life expectancy is
rising and fertility is decreasing. What still needs to be dealt with is how can aging countries such
as Japan and the United States adapt themselves to these changes in demographics in terms of the
provision of healthcare. A completely different infrastructure for an older population needs to be
created through reforms in order to approach the upcoming issues resulted from the current
financing model that heavily relies on the working age population to subsidize the elderly. While
the reforming of EOL is indeed cutting healthcare expenses, this is only providing a framework
which can be utilized in the short term. Moreover, it is rather debatable on how to decide whose
benefits to cut. The most successful policy is by far natalism as this increases the fertility rate
reducing therefore population aging. It is impossible to stop individuals from living longer as a
result of improvements of healthcare and welfare. With an ever-growing elderly population,
26 Emanuel, E.J. The economics of dying: the illusion of cost savings at the end of life, 542.
27 Prioux, F. and Mandelbaum, J. Recent demographic developments in France: fertility at a more than
30-year high., 423.
governments should be aiming to promote more childbirth to establish future generations that can
subsidize through the payment of taxes the expenses of healthcare programs. It can be said that
governments should consider both short term and long term policy options as the management of
the negative effects of population aging will clearly be one of the major domestic challenges they
will face in the near future.
Figure 1: Life expectancy globally and by world regions
Source: Our World in Data, 2017.
Figure 2: World population, by five-year age group of males and females
Source: The Economist, 2011.
Figure 3: Under-five mortality rate (per 1,000 live births), by region, 1960–2005.
Source: UNICEF, 2006.
Figure 4: Comparison of fertility rates for selected countries in 1960 and 2015.
Source: Our World Data, 2017.
Figure 5: World population by world regions.
Source: Our World Data, 2017.
Figure 6: Population Scenarios 1950-2100.
Source: Views of the World, 2011.
Figure 7: System of Long-Term-Care Insurance in Japan.
Source: Matsuda, S and Yamamoto, M., 2001.
Figure 8: Increase in the share of the U.S. population age 65 and older in 2050.
Source: The New York Times, 2011.
Figure 9: Trust Fund Balance at Beginning of Year as Percentage of Annual Expenditures.
Source: Medicare Board of Trustees, 2017.
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