Jonathan Tan of Marsh & McLennan Companies' Asia Pacific Risk Center, discuss the potential challenges and opportunities for managing the astonishingly vast aging population in Asia.
Within the next 15 years, an estimated $20 trillion will be drained from Asia’s economy simply to keep up with the increased healthcare needs of its rapidly aging population.
The strain of healthcare costs for the elderly (aged 65 years and older) will test the ability of governments to fund adequate healthcare programs, raise the specter of longevity risk for insurers who must deal with increasing lifespans outstripping coverage and squeeze the ability of pensions to remain viable.
The number of elderly people in Asia by 2030 will increase by 200 million, a 71 percent increase, compared to 31 percent in Europe and 55 percent in North America. In Singapore, for example, the elderly population is expected to rise from 11 percent to 20 percent over the next 15 years, while it took France 49 years to do the same. Similarly, Japan—where the elderly account for more than 28 percent of the population—is expected to become the world’s first ultra-aged nation by 2030.
Investment in healthcare capacity typically occurs in tandem with economic development; however, rapid demographic aging results in countries growing old before they become rich, compromising their ability to achieve a high level of economic development to contend with the socioeconomic consequences of an aging population, including the increase in need for elderly healthcare. Marsh & McLennan Companies’ Asia Pacific Risk Center (APRC) estimates that elderly healthcare in Asia could increase five-fold to $2.5 trillion by 2030, if current cost trends remain unchecked.
The confluence of societal aging and other factors leads to the risk of exponential growth in elderly healthcare expenditure:
Demographic aging. Increasing life expectancy and falling fertility rates result in the growing number and proportion of the elderly population.
Economic growth. Healthcare displays a positive income elasticity of demand. Accordingly, in tandem with the rapid economic progress in Asia, medical cost has been experiencing strong inflation, estimated at 10.3 percent in 2016.
Increase in non-communicable diseases (NCDs). Societal aging is associated with increased prevalence of NCDs, such as diabetes and dementia. This compounds the burden on the healthcare system as increased life expectancy is accompanied by greater duration of disability.
Healthcare model inefficiencies. This includes the practice of fee-for-service and fragmented care pathways that result in over-servicing and uncoordinated care. Pricing policies for new treatments without adequate consideration of the comparative effectiveness to existing treatments further contribute to medical inflation.