Disability and Health Care Expenditures among Medicare Beneficiaries Michael Chernew Dana Goldman Baoping Shang Feng Pan Sept. 26, 2005

The Population is Aging The number of individuals older than 65 is projected to grow rapidly –135% between 2000 and 2050 The number of individuals older than 85 is projected to grow rapidly –350% between 2000 and 2050

Pessimistic View Disability rates increase with age –0.47 among those 65-69, –0.61 among those 75-89, –0.82 among those Costs will rise due to aging and disability

Optimistic view The level of disability for any given age group has been declining over time –Controlling for age, the probability of having disability fell by 0.38% per year The effects of aging on disability may be offset by the decline in age specific disability rates –Waidmann & Liu (2000) Declining age specific disability rates will ameliorate disability related cost pressures

Key Question How have spending trends varied by disability status?

Analysis Estimate the relationship between disability and spending over time Use a micro-simulation model to forecast the effects of changing disability on spending –Allow differential cost trends –Vary disability trends –Account for effects of disability on spending and longevity

Adjusted Spending Growth, Category Spending Growth Non-disabled23% IADL only 28% ADL 1 or 2 10% ADL 3 or 4.6% ADL %

Implications Shifts to low disabiity groups (non- disabled, iADL only, 1 or 2 ADL) –Reduce costs –Increase cost growth

Disability scenarios Scenario A: Reduce the prevalence among community dwelling elderly in each disability state by about 20%. Scenario B: Prevent disability from getting worse.

Per Beneficiary Spending under Different Scenarios