Medicare Spending for the Very Old Outpaces All Other

Summary of working paper 7279
Featured in print Digest

Spending on post-acute care for those over age 85 has risen 20 percent per year in the last decade, from $241 per Medicare enrollee in 1985 to $1,887 in 1995.

For the past twenty years, the number of Medicare beneficiaries has increased by 50 percent and Medicare spending per beneficiary has doubled. This growth has occurred despite the fact that the health of Medicare beneficiaries has improved. In The Concentration Of Medical Spending: An Update (NBER Working Paper No. 7279), NBER Research Associate David Cutler and Ellen Meara document how trends in spending, stratified by age, have changed among elderly Medicare beneficiaries. They also attempt to explain why health spending on the elderly has increased even though their disability rates have declined.

The authors find a trend of disproportionate spending growth among the elderly between 1985 and 1995. Spending among the younger elderly, those aged 65-69, rose by 2 percent per enrollee annually. In contrast, spending for those age 85 and above rose by 4 percent per enrollee.

According to the authors, the reasons for the large increase in spending on the oldest elderly relative to the younger elderly is the rapid increase in the use of post-acute services such as home health care and skilled nursing care. Spending on post-acute care for those over age 85 has risen 20 percent per year in the last decade, from $241 per Medicare enrollee in 1985 to $1,887 in 1995( all figures are in 1995 dollars). Post acute services for the younger elderly grew by 15 percent per year during the same period, from $49 to $227.

Throughout the time period, disability rates among the elderly have fallen by about 1.5 percent per year. Since the disabled spend more on medical care than the non-disabled, spending on the elderly should be falling over time, at least in relative terms. The authors find that the increase in post-acute services explains the discrepancy between falling disability rates and increased spending on the elderly.

During the same time period, spending growth on acute services did not vary by age groupings within the elderly population. This is in contrast to earlier studies which showed that prior to 1987, the increased spending on the oldest elderly was primarily attributable to increased use of acute services.

The authors suggest that the increased use of post-acute services may be caused by a combination of three factors: first, a true increase in services for populations who were not receiving care in the past; second, playing the Medicare system so that providers now use relatively more lucrative out-of-hospital services instead of in-hospital services for the same conditions; and third, outright fraud.

The authors use a sample of approximately 35,000 individuals and Medicare claims data from 1982 through 1995. They relate medical spending by age to 6 factors: demographics, disability, time until death, intensity of treatment, prices, and changes in the nature of care.

-- Les Picker