The impact of population ageing on healthcare expenditure in South Africa

M.Com. (Development Economics)Abstract: For many years, ageing has been considered an issue that was only encountered in developed countries, however, overtime it has become a universal issue that is spreading throughout developing countries. As individuals get older, their health status deteriorates, and this results in an increase in the consumption of medical care services, and consequently healthcare expenditure. The aim of the study is to analyse the relationship between population ageing (as proxied by life expectancy and the old age dependency ratio) and healthcare expenditure. The increase in the share of elderly population does not only impact on healthcare but also, has an effect on other areas of social policy and the economy as a whole. Thus, it has become important for developing countries to examine the impact of population ageing as it broadly affects social, economic and demographic factors. The studies main focus is on healthcare cost and changes in population age structures. This dissertation uses data from the National Treasury database and Federal Reserve Economic database that covers the period 1983 to 2015. The Autoregressive Distributed Lag Model is the proposed model utilised to assess the long-term and short-term relationship between ageing and health spending. Based on empirical findings, evidence confirms that health expenditure is co-integrated with life expectancy, implying a long-term relationship between population ageing and health expenditure. Health expenditure is significantly and positively associated with life expectancy. Therefore, population ageing, as proxied by life expectancy, increases health expenditure in the long-term. In the short term, there seems to be no relationship between health expenditure and life expectancy. Similarly, the old age dependency ratio has a positive impact, but is not significant either the short or the long term. These results are consistent with the micro evidence that health expenditure increases with age on an individual level, with significant impact in the long-term. This therefore indicates the imperative to redesign the health system by ensuring that, there are enough resources allocated for the elderly so as to accommodate the needs of increasing and unavoidable growth of the elderly population, as well as counteract for the long-term effects of population ageing. Furthermore, it is important to recognise the contribution that older people make in a society as they possess a large reserve of human capital especially in education and work experience, therefore by increasing their participation in the workforce this would minimise the fiscal pressure on government