Spurring enrollment in Medicare savings programs through a substitute for the asset test focused on investment income.

Fewer than one-third of eligible Medicare beneficiaries enroll in Medicare savings programs, which pay premiums and, in some cases, eliminate out-of-pocket cost sharing for poor and near-poor enrollees. Many beneficiaries don't participate in savings programs because they must complete a cumbersome application process, including a burdensome asset test. We demonstrate that a streamlined alternative to the asset test-allowing seniors to qualify for Medicare savings programs by providing evidence of limited assets or showing a lack of investment income-would permit 78 percent of currently eligible seniors to bypass the asset test entirely. This simplified approach would increase the number of beneficiaries who qualify for Medicare savings programs from the current 3.6 million seniors to 4.6 million. Such an alternative would keep benefits targeted to people with low assets, eliminate costly administrative expenses and obstacles to enrollment associated with the asset test, and avoid the much larger influx of seniors that would occur if the asset test were eliminated entirely.

Reforming beneficiary cost sharing to improve Medicare performance.

This paper explores options for reforming Medicare cost sharing in an effort to provide better financial protection for those beneficiaries with the greatest health care needs. Using data from the Health and Retirement Study (HRS) and the Medicare Current Beneficiary Survey (MCBS), we consider how unified annual deductibles, alternative coinsurance rates, and a limit on out-of-pocket spending would alter program spending, beneficiary cost sharing, and premiums for supplemental coverage. We show that adding an out-of-pocket limit and raising deductibles and coinsurance slightly would provide better safeguards to beneficiaries with high costs than the current Medicare benefit structure. Our estimates also suggest that policies protecting these beneficiaries could be structured in a way that would add little to overall program costs.

Medicare savings programs: analyzing options for expanding eligibility.

The Medicare Savings Programs (MSPs) are designed to provide financial assistance to Medicare beneficiaries who do not qualify for full Medicaid coverage. This paper considers changes in eligibility that would better align MSP program rules with those related to receiving low-income subsidies for the Medicare Part D drug benefit. These changes would make more people eligible for the MSPs and could encourage greater participation; similar changes were incorporated in recently passed legislation. Our analysis, based on 2006 data from the Health and Retirement Study, shows there is a trade-off between making larger numbers of beneficiaries eligible by eliminating resource requirements and better targeting of individuals with greater health care needs by expanding income standards.

Does age or life expectancy better predict health care expenditures?

It is an unresolved issue whether age or (expected) remaining life years better predicts health care expenditures. We first estimate a set of hazard models to predict life expectancy based on individual demographic characteristics and health conditions, and then use regression analyses to compare the predictive power of age and life expectancy in explaining health care expenditures. This paper differs from previous studies in that it uses predicted life expectancy to address the censoring of death; as a result, this paper goes beyond the large health care expenditures at the end of life and the results apply to both deceased and survivors. We find that age has little additional predictive power on health care expenditures after controlling for life expectancy, but the predictive power of life expectancy itself diminishes as health status measures are introduced into the model. These results are not of esoteric interest only for their statistical properties; we show that using life expectancy rather than age results in lower projections of future health care expenditures. This result suggests that increases in longevity might be less costly than models based on the current age profile of spending would predict.

The Value of Elderly Disease Prevention.

Approximately 100 million elderly will enter Medicare over the next 25 years. We consider the potential benefits of interventions that would reduce or eliminate the most important risk factors for disease and spending. Effective control of hypertension could reduce health care spending $890 billion for these cohorts while adding 75 million disability-adjusted life years (DALYs). Eliminating diabetes would add 90 million life-year equivalents at a cost of $2,761 per DALY. Reducing obesity back to levels seen in the 1980's would have little effect on mortality, but yields great improvements in morbidity (especially heart disease and diabetes) with a cost savings of over $1 trillion. Smoking cessation will have the smallest impact, adding 32 million DALYs at a cost of $9.045 per DALY. While smoking cessation reduces lung disease and lung cancer, but these are relatively low prevalence compared to the other diseases. Its impact on heart disease is negligible. The effects on overall social welfare are unknown, since we do not estimate the costs of these interventions, the costs of any behavioral modification, or the welfare loss due to providers from lower medical spending.

Consequences of health trends and medical innovation for the future elderly.

Recent innovations in biomedicine seem poised to revolutionize medical practice. At the same time, disease and disability are increasing among younger populations. This paper considers how these confluent trends will affect the elderly's health status and health care spending over the next thirty years. Because healthier people live longer, cumulative Medicare spending varies little with a beneficiary's disease and disability status upon entering Medicare. On the other hand, ten of the most promising medical technologies are forecast to increase spending greatly. It is unlikely that a "silver bullet" will emerge to both improve health and dramatically reduce medical spending.

The lifetime burden of chronic disease among the elderly.

The high costs of treating chronic diseases suggest that reducing their prevalence would improve Medicare's financial stability. In this paper we examine the impact of selected chronic diseases on the distribution of health spending and its variation over the course of disease. We also use a microsimulation model to estimate these conditions' impact on life expectancy and health spending from age sixty-five to death. A sixty-five-year-old with a serious chronic illness spends 1000-2000 dollars more per year on health care than a similar adult without the condition. However, cumulative Medicare payments are only modestly higher for the chronically ill because of their shorter life expectancy.

The health and cost consequences of obesity among the future elderly.

Obesity could have serious consequences for older cohorts. We used a microsimulation to estimate lifetime costs, life expectancy, disease, and disability for seventy-year-olds based on body mass. Obese seventy-year-olds will live about as long as those of normal weight but will spend more than 39,000 dollars more on health care. Moreover, they will enjoy fewer disability-free life years and experience higher rates of diabetes, hypertension, and heart disease. Medicare will spend about 34 percent more on an obese person than on someone of normal weight. Obesity might cost Medicare more than other diseases, because higher costs are not offset by reduced longevity.

Disability and health care spending among medicare beneficiaries.

This paper forecasts the impact of changing disability rates on spending by Medicare beneficiaries. We adjust for differential changes in spending by the disabled because the composition of the disabled population and the intensity of their treatment are changing. Among community-dwelling elderly, spending growth among the least disabled grew more quickly than among the most disabled, which offsets some of the cost savings associated with declining disability rates. Using estimates of spending trends by disability category, we project that the cost savings associated with improved disability rates will not dramatically slow Medicare spending in the long run.

Technological advances in cancer and future spending by the elderly.

This paper forecasts the consequences of scientific progress in cancer for total Medicare spending between 2005 and 2030. Because technological advance is uncertain, widely varying scenarios are modeled. A baseline scenario assumes that year 2000 technology stays frozen. A second scenario incorporates recent cancer treatment advances and their attendant discomfort. Optimistic scenarios analyzed include the discovery of an inexpensive cure, a vaccine that prevents cancer, and vastly improved screening techniques. Applying the Future Elderly Model, we find that no scenario holds major promise for guaranteeing the future financial health of Medicare.

Disability forecasts and future Medicare costs.

The traditional focus of disability research has been on the elderly, with good reason. Chronic disability is much more prevalent among the elderly, and it has a more direct impact on the demand for medical care. It is also important to understand trends in disability among the young, however, particularly if these trends diverge from those among the elderly. These trends could have serious implications for future health care spending because more disability at younger ages almost certainly translates into more disability among tomorrow's elderly, and disability is a key predictor of health care spending. Using data from the Medicare Current Beneficiary Survey (MCBS) and the National Health Interview Study (NHIS), we forecast that per-capita Medicare costs will decline for the next fifteen to twenty years, in accordance with recent projections of declining disability among the elderly. By 2020, however, the trend reverses. Per-capita costs begin to rise due to growth in disability among the younger elderly. Total costs may well remain relatively flat until 2010 and then begin to rise because per-capita costs will cease to decline rapidly enough to offset the influx of new elderly people. Overall, cost forecasts for the elderly that incorporate information about disability among today's younger generations yield more pessimistic scenarios than those based solely on elderly data sets, and this information should be incorporated into official Medicare forecasts.