Background: The healthcare costs of an aging population have major consequences for healthcare organizations and have major implication for strategic planning of services. An impending freeze in budgets in the UK makes these consequences especially significant.
Methods: We present a methodology of estimating the future healthcare costs to an organization due to an aging population that takes account of the excess costs in the years before death and the effect of morbidity compression or expansion. The performance of three different models is evaluated.
Results: The three models all give markedly different estimated costs. Models failing to take into account both the cost burden towards the end of life and compression or expansion of morbidity can vastly under- or overestimate the most accurate estimates of healthcare expenditure due to an aging population with annual increases in costs varying from 0.48 to 1.12%.
Conclusion: The importance of being able to accurately predict demand and costs of health care within the NHS cannot be underestimated. Making over simplistic assumptions and not using well-established principles in these models leads to greatly different outcomes that have the potential to have massive organizational consequences in terms of short-to-medium term strategic planning.