LONGEVITY AND ELDERLY HEALTH CARE EXPENDITURES

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DESCRIPTION (Adapted from the Applicant's Abstract): Rapid aging by the United States population over the next several decades is expected to have profound effects on aggregate health care costs. Health care costs are expected to increase because babyboomers will swell the number of elderly, health care expenditures generally increase with age, the elderly are living longer, and technological change will increase the cost of medicine if it continues to increase at historical rates. However, four factors may mitigate the problem. Health care expenditures depend in part on time until death, with higher expenditures prior to death, so increased longevity may merely push expenditures further into the future. A growing percentage of Medicare beneficiaries are enrolling in Medicare managed care, which may slow the growth of expenditures. Male longevity has increased faster than female longevity, meaning that fewer elderly are widowed, which is a major risk factor for expensive long-term care. Finally, disability rates have been declining over at least the last decade. In the first part of the study the investigators will analyze per person annual health care expenditures as a function of age, time until death, their interaction, insurance (FFS vs. HMO), functional status (ADLs and IADLs), and demographics using seven years of the Medicare Current Beneficiary Survey. The analysis will focus on total health care expenditures by all payers for elderly Medicare beneficiaries, for both standard fee-for-service and HMO beneficiaries. They will also look at three specific types of expenditures: inpatient hospital care, home health, and nursing home. Payer types include Medicare, Medicaid, out-of-pocket, and other payers. In the second part of the study they will simulate future health care expenditures by combining our empirical results with available estimates of changes in the key parameters--mortality, functional status, other demographics, insurance, and technological change. The MCBS panel data will enable them to use their own estimates of the increase in managed care coverage and the decrease in disability rates, as well as other sources.