While it may seem intuitively obvious that health expenditures will increase as a population ages – older people after all are less healthy on average than younger people –in fact, several prominent health economists have argued that it is not aging per se, but rather some of the correlates of an aging population that cause health expenditures to rise as a population ages. For instance, Getzen (1992) argues that, at least in part, rising health expenditures with an aging population are due to the higher incomes and resources of the older population; health care is a normal good, so higher incomes lead to higher expenditures. In a similar manner, Zweifel et al. (1999) argue that the real problem with an aging population, at least as far as health care costs are concerned, is that there will be more people who are within a couple of years of dying. Since health care expenditures rise sharply close to the end of life, it is this, rather than population aging by itself, that leads to higher health care expenditures.

• Suppose that population aging in a given country is due entirely to an increase in life expectancy at age 65, rather than any other cause, and suppose further that Zweifel et al. (1999) are right and the rise in the set of people who are close to death causes higher health expenditures. Given these assumptions, would you expect per capita health care expenditures to rise or fall in the near future? What about total health expenditures?

• Suppose that Getzen’s finding is accurate, and the reason why population aging is correlated with higher health expenditures is because older populations tend to be richer than younger ones. If that is so, do rising health care expenditures mean higher or lower social welfare? Under these conditions, should policymakers be concerned about higher health care expenditures due to population aging?