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Computer Graphics	The Problem of Ageing - Long Term Care Insurance Long term care is primarily concerned with the aged and it is here that the perceived problem arises. By 2021 about twenty per cent of population will be over 65 and the dependency rate (dependency per hundred persons of working age) will have risen from 50 to 55. The problem this could cause in ageing populations has been highlighted, in particular, by the World Bank which argues that there is `a looming old age crisis that threatens not only the old but also their children and grandchildren, who must shoulder, directly or indirectly, much of the increasingly heavy burden of providing for the aged'. Despite the dramatic language, repeated by numerous newspaper columnists, there are reasons for doubting that the social adjustment that must occur should be described as a `crisis' and especially in Australia. Firstly, Australia is still relatively young by Western (not by Asian) standards. By the middle of the next century its demographic profile will be similar to the current profile in the UK and several other European countries which have maintained economic growth and not encountered a crisis. Secondly, the high dependency ratio does not in itself imply an unsustainable burden. In 1901 the rate was 65 - the rate projected for 2041 (Johnson 1996). Rather the burden depends upon the productivity of the remaining population. As Creedy and Taylor (1993) have shown the burden arising from future ageing depends almost entirely upon growth rates, unemployment and the participation rate of the workforce (including, of course, the participation rate by the elderly). Johnson's more balanced assessment of the impact of ageing is summarised as follows: Future changes in the age structure of population will be no greater than those already experienced and accommodated in the last fifty years and estimates of demographic dependency ratios provide an unreliable basis for future economic projections. Ageing and Health Expenditures The health sector has several unusual features relevant to this problem. As noted, the elderly consume a disproportionate share of health resources and the health sector appears to be inexorably expanding. This implies that any problem associated with ageing will be particularly acute in the health sector. There are, however, two important caveats. First, a transition to a more elderly population will occur slowly and the rate at which health services would have to expand to provide the projected aged population with the level of health care currently provided to the elderly is significantly less than the historical expansion of the health sector. Even with a technologically induced increase in the service use by the elderly their needs could be absorbed at the present rate of increase in service provision. Secondly, crisis scenarios are often premised on the implicit assumption that there is a simple mechanistic relationship between age and necessary expenditures. This is unambiguously false. International expenditures vary enormously and the UK with its much more elderly population spends significantly less on health. Within Australia the variation in the supply of nursing home beds between states similarly indicates the flexibility in the level of possible provision for the aged. Flexibility in the level of servicing is generally true in the health sector and particularly where the indications for specific services are unclear, as in the case of long term care. This observation has a twofold implication. First the level of expenditure on future long term care is quite uncertain. It depends as much upon how the health sector organises the financing and delivery of care as it does upon ageing per se. Secondly, and following from this, it is absolutely essential that the reform of long term care should have as a central objective the achievement of efficiency - minimum cost for fixed benefits or maximum benefits for fixed cost. Reforms which focussed exclusively upon raising funds could be counter-productive. Unnecessary costs could result in a greater and not smaller burden despite higher revenue. That is, the overall burden depends as much upon the services delivered and their cost as upon revenue. In this respect the international evidence is relevant and clear. Reform has been primarily associated with government and cost control associated with government imposed budget caps. The chief exceptions to this rule are the HMOs in the USA and the recent US private sector initiatives with respect to managed care (a belated response to health care costs which have now risen to more than double the Australian level). Generally, private enterprise has been passive in the health sector and, as in Australia, private health insurance has shown no capacity to bring about sensible reform. Both theory and evidence suggest that cost control and efficiency in the health sector requires a very significant government role. This need not imply a fully run government scheme (although OECD data suggest that these have to date been cheaper). It does imply careful regulation of the private sector and, in particular, definition of the benefits for which public funding will be available.