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Friday, December 8, 2006

Ferenc Puskás and Life Expectancy

Today we learn of the sad death of Ferenc Puskás at the age of 79. Puskás was undoubtedly a great footballer (you can find an interesting page about him on wikipedia) and he will be missed by family and football fans alike. Puskás reached the comparatively advanced age of 79, and we hope he enjoyed his later life. We may also like to note that Puskás lived considerably longer than the majority of Hungarian men, since the average male life expectancy is currently some 68.45 years. And it is here that the economic part of our story begins.

Life expectancy in Hungary continues to be comparatively young by European standards, so it is to be hoped that in the coming years this situation will improve considerably, but how exactly will this improvement affect the economic outlook for Hungary, that is also the question?

Now one thing is clear, any increase in life expectancy in Hungary will come by people who are now over 60 living longer. As this happens it will be wonderful news for everyone, but in economic terms this will have an important on cost, since it will involve a considerable expenditure in medical care and medicine, and it is just the question of who is going to pay for this which is the subject of considerable dispute between the Hungarian government and the pharmaceutical companies:

“We see if the modification would get approved it could lower the payment obligation of both Egis and Richter arising from tax on drug subsidies to HUF 1.5bn (when compared to the earlier version of 14%-16% tax resulting in HUF 2.0bn) and to HUF 2.4bn (when compared to the earlier version of 14%-16% tax resulting in HUF 3.3bn) for 2007 respectively," KBC's Barbara Jánosi said on Friday.

She added this step would be only a little positive development for these two companies when compared to substantial increase seen in their payment obligation from co-financing the gap of the drug subsidy budget.

According to the Parliament's latest decision, next year's drug subsidy budget target will be HUF 287 billion when compared to HUF 364 bn reported earlier by the Finance Ministry.

“We see the lowered target could lift substantially the budget gap for next year resulting in higher payment obligation for drug makers (if no changes will be in the distribution principles of the gap between industry participants)," Jánosi added.

Now it is clear that with this current comparatively low life expectancy some considerable improvement is to be hoped for and expected. If we take a look at a comparable society, the old east Germany, we can see that such an improvement can occur relatively quickly, if the right care and clinical environment is available.

Last year I had a post about this situation on a Fistful of Euros, based on a paper by the German-based researcher Marc Luy. Essentially the point is that after years of life expectancy divergence, the two societies - East and West - converged again comparatively rapidly in the 1990s based largely on what Luy calls the availability of nursing care:

“The demographic changes and developments in Eastern and Western Germany are generally seen to offer a unique possibility to understand the interaction between societal, social respective economic conditions and population processes. Almost identical demographic composition and behaviour until 1945 were followed by 45 years of life under different political and socio-economic structures resulting in completely different demographic conditions…. With Reunification in 1990 the population in Eastern Germany returned to the Western societal and economic system what caused sudden changes in all its demographic developments. These special preconditions lead some scholars to describe the Eastern German population as a kind of 'natural experiment' generated a large number of researches about changes in Eastern German demography.”

“In the field of mortality research especially the rapid convergence of survival conditions since 1990 following roughly two decades of continuous divergence are subject of central interest. The fact that both, the former increase and the recent decrease of the life expectancy gap between West and East Germany were mainly caused by age groups between 60 and 80 led to the central message that "it's never too late" for increasing length of life.”

So on the face of it a convergence of Hungarian life expectancy towards levels which are regarded as rather normal in the West European parts of the EU is to be expected, but we need to think about how this can be paid for.

Now many attribute Germany's current public finance problems to the incorporation of East Germany, and this view is *both* right and wrong.

It is wrong in the sense that it doesn't take account of the fact that ageing is an *all Germany* phenomenon, but it is right that the rapid increase in life expectancy that took place in East Germany in the 1990s simply piled on, and piled on the costs, and this must be a big part of the current financial crisis that the German health system is experiencing.

So all I am saying at this point is that the sum total of these effects will make the managing of the Hungarian deficit issue a bigger rather than a smaller headache, and the sooner the body politic in Hungary wakes up to this the better.

This is reposted from my Hungary blog: Hungary Economy Watch

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