IN FOCUS6-8 min read

Demographics: the impact of ageing populations on healthcare spending

Statistical analysis of population trends suggest a large growth opportunity for healthcare providers as a result of changing demographics.

01/11/2023
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Authors

Francesca Guinane
Investment Director, Investor Insights Unit
Ryan Croft
Investment Insights Unit

Changing demographics globally will have a huge affect on economic growth and inflation.

There is a major focus on the shrinking pool of younger workers and the wage pressure that employers face as a result.

A larger proportion of elderly people also creates pressure on government spending, not only through pension provision, but also through the need for increased spending on healthcare.

Private companies have an opportunity to help both governments and individuals meet the challenges associated with ageing populations. Healthcare provision, whether through increased demand for services and procedures, or due to lack of healthcare professionals, is already under pressure in many major high-income countries.

Over the coming decades, ageing populations will also become prevalent in many of the middle income countries within the Organisation for Economic Co-operation and Development (OECD).

Statistical forecasting of age-related diseases

Given these trends, we have analysed where healthcare demand could be greatest both for individual countries and for various conditions. Using statistical techniques, we can forecast what future demand for age-related disease treatment and procedures could be.

We have forecasted prevalence for age-related diseases using a time series forecasting method called "exponential smoothing". Taking current and historic estimates from The Institute for Health Metrics and Evaluation (IHME), we can map this data to the current population and future population forecasts.

Exponential smoothing uses historic trends, placing more weight on the recent past, in order to forecast future trends with constraints in place to prevent unrealistic estimates.

Our analysis shows that age-related diseases such as osteoarthritis, kidney disease, high blood pressure, dementia, and obstructive pulmonary disease are likely to grow faster than non-age-related diseases because of an ageing population.

It is worth noting that often multiple age-related diseases are experienced by an individual at any point in time. Japan is the only example from our analysis that will experience a smaller amount of change due to the country’s existing age profile.

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Nearly every high income country will experience ageing populations until approximately 2050, although the rate of ageing will vary widely. We see a rapid acceleration of the over 70s population and fast decline back to lower levels in South Korea, Italy and Spain. Meanwhile, the UK, US, Canada and Australia should see a more gradual increase in the number of over 70s, but also a slower decline in the following decades.

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If we focus on the US as an example, using healthcare spending by age-related disease, we can see the difference demographic and disease prevalence forecasts will have on spending (keeping the cost per disease the same as today). Across a range of different diseases and conditions, we have forecasted a large and necessary increase in spend driven purely by volumes. Of the age-related diseases, cardiovascular and musculoskeletal will continue to be the largest spend.

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As well as age-related diseases, the need for hip and knee replacement procedures is likely to rise as populations age.

Large growth opportunity for healthcare providers

These projections could be considered when planning for future healthcare needs, resource allocation and investment opportunities within the healthcare sector.

On average in the OECD, hip replacement rates increased by 22% between 2009 and 2019 and knee replacement rates by 35%. This aligns with the rising incidence and prevalence of osteoarthritis, caused by ageing populations and growing obesity rates.

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Using the same methodology, our forecasts suggest knee and hip replacements volumes could increase by 100% in Australia 70% in Canada and 50% in Italy and UK by 2050.

Taking all of these forecasts into consideration, there is a large opportunity for expansion for healthcare providers and medical equipment providers in these countries.

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Authors

Francesca Guinane
Investment Director, Investor Insights Unit
Ryan Croft
Investment Insights Unit

Topics

3D Reset
Demographics
Healthcare
Global
Equities
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