Improving the quality of life and longevity of the elderly: the role of private versus public health

We develop an overlapping generations model to study how the combination of public and private health expenditures affects the health status and/or longevity of the elderly, as well as its impact on steady-state economic growth. We find that two distinct scenarios may arise-one with and one without reliance on private health care-depending on the relative value of private versus public health spending. In both cases, a positive locally asymptotically steady state emerges in terms of capital per worker, and a switch between regimes may occur depending on the share of public balance spent on the health system. Furthermore, increasing such a share increases the equilibrium longevity, while the effects on health status are ambiguous. Specifically, when the effectiveness of public expenditure is low, increasing public resources allocated to healthcare does not necessarily lead to improvements in health status. In contrast, when public spending is highly effective, greater allocation of public resources becomes a powerful tool to improve health status in old age.