EOL and Economics © Allen C. Goodman, 2003

Two types of thoughts Your body is like a car Incremental costs and incremental benefits

A car? It starts out new and shiny Works well, needs low maintenance Doesn’t need much in repairs

and then? or or worse!

How do we look at this? If we make investments, they cost us money, but they provide benefits to us. We do the easiest (least costly) ones first. Investments $ of costs, benefits A B C D E

How do we look at this? As for benefits … Investments $ of costs, benefits A B C D E Which projects do we do?

It’s easy … and not usually bad, to re-draw these as lines. Investments $ of costs, benefits A B C D E How do we look at this? Marginal benefits Marginal costs

The body as a capital good Economists look at health as a capital good. We invest in it through: –Good nutrition –Exercise –Medical care This is a major contribution of Fuchs in Who Shall Live. His Utah/Nevada comparison highlights quality of life issues.

Age GroupMalesFemales <142%35% %26% %42% %69% %28% %17% % 6% Excess Death Rates (Nevada - Utah) Fuchs -- Utah/Nevada

Back to your body as a car … When new, it works well, requires routine maintenance. What do you replace regularly? –Tires, breaks, filters, etc. As it ages, what happens? –It becomes more expensive to keep up.

Marginal benefits may decrease … we’ll enjoy them over a shorter future. Marginal costs may increase … we’re depreciating! Investments $ of costs, benefits As we age? Marginal benefits (mb) Marginal costs (mc) Mb´ Mc´ EarlyLater

Result We may invest less … and it may cost more. There are many EOL decisions that are implicitly … or explicitly … framed in marginal benefit, marginal cost terms.

What can we say about EOL costs? About 1/4 (27%) of Medicare costs are for the last year of life, unchanged from 20 years ago. “High cost of dying” is the cost of caring for severe illness and functional impairment. Joanne Lynn, Christopher Hogan, June Lunney, and Jon Gabel, "Medicare beneficiaries' costs of care in the last year of life," Health Affairs 20(4), (July 2001):

Thru mid-1990s Decedents’ per capita Medicare program outlays were about 6 times higher than outlays for survivors. Why? A typical decedent suffered from nearly four serious diseases in the last year of life, while survivors averaged slightly more than one in a typical calendar year.

Diseases and costs About 3/4 of decedents had some mention of heart disease; about 1/3 had cancer, stroke, chronic obstructive pulmonary disease or pneumonia/influenza; about 1/4 had some form of dementia. Yet, when compared with similarly old and sick survivors, decedents had less than 30% higher medical costs during last year of life. Why? More likely episode of nursing home care … less likely use (at the end) of expensive hospital care

Additional Research Medicare Beneficiary Study. Donald R. Hoover, Ph.D., M.P.H., Steven Crystal, Rizie Kumar, M.S., et al., "Medical expenditures during the last year of life: Findings from the Medicare current beneficiary survey,“Health Services Research 37(6) (December 2002 ): However, portion of Medicare expenses on last year of life was 26%, similar to other study.

Last year of life expenses constituted … 22% of all medical, 26% of Medicare, 25% of Medicaid, 18% of non-Medicare expenses Additional non-Medicare expenses are directed toward facility-based management of chronic conditions preceding death rather than to acute terminal conditions. As elderly population increases, average real EOL expenses will probably change little, but portion paid by non- Medicare sources supporting chronic and custodial care will likely rise

Thoughts?