Journal Article: "Re-measuring the Impact of Demographics Structure on Health Costs in China：An Estimate Based on an Improved Factor Decomposition Method"

Title: Re-measuring the Impact of Demographics Structure on Health Costs in China: An Estimate Based on an Improved Factor Decomposition Method

Authors: Shiyu Li, Junxin Feng

Language: Chinese

Publication: Population & Economics, April 2023, 1000-4149: 1-15

English Abstract: 

Demographic shifts have an important impact on health cost changes. Based on China’s urban-rural dual track health care system, this paper improves the decomposition method of the influencing factors of health expenditure, which helped us to analyze the influence of demographic structure on health costs more comprehensively and accurately. In this model, we first separated the shift in the urban-rural structure of the population is decomposed from other factors, and then divided the age structures effect between urban and rural sector respectively. Finally, we refined demographic structure into three components: urban-rural structure of the population, urban age structure and rural age structure. Using an improved factor decomposition method, this paper measures the contribution of demographic factors to the change in total health costs as a share of GDP in China over the period 1990-2020.More specifically, demographic structure factors combined contributed 77.8% of the ratio’s increase. Of which, urban-rural composition changes (urbanization) contributed 58.3%, urban and rural age composition contributed 14.8% and 4.7% respectively. Further analysis showed that there are different characteristics of the effects of different demographic factors. Firstly, urbanization was the major driver of healthcare expenditure boost in the past 30 years, and its effect had been smooth. Secondly, there are significant urban-rural and stage-specific differences in the effects of age structure. Concerning different sectors, though rural sector had a higher and faster population ageing, its age structure effect had been much lower than that of urban sector. Concerning different periods, the overall effect of age structure was relatively low before 2010, because population ageing mainly happened in the rural sector. However, since 2010, the overall effect of age structure had increased dramatically as urban aging begins to accelerate, and is expected to increase rapidly in the future as the main battlefield of China’s population aging shifts from rural to urban areas. Finally, the measurement results also show that the urban-rural dichotomy in urban and rural health expenditures has improved in the last 10 years, after deducting the effect of age structure.