Fact Check:Will Increased Longevity Bring Down Medicare?

The Sound Bite:

Increased longevity costs will bankrupt medicare.

Fact or Fiction?

This is partly fact, partly fiction. Medicare entitlement begins when a person ages in at 65, however just because beneficiaries are living longer does not necessarily mean higher Medicare costs.

The customary formulation of this myth is that Medicare is doomed by its own success in keeping its beneficiaries alive. Not only will the ranks of the program’s beneficiaries increase as the vaunted baby boom generation reaches the statutory age of eligibility, but because people are staying alive longer, Medicare’s costs will explode. The first part of this contention is indisputably true: entitlement to Medicare occurs when a person reaches age sixty-five, and the baby boom generation that is generally calibrated as starting in 1946 has arrived at that threshold. As a result, additional Medicare beneficiaries enter that program every day, and because the baby boom generation dwarfs any preceding age cohort, it is highly likely that more beneficiaries will be added to the program than are lost as older beneficiaries pass away. Consequently, the number of Medicare beneficiaries will inexorably increase over the next decade or so. Ceteris paribus, more beneficiaries mean higher aggregate costs.

The second part of the contention, however, is myth. Just because today’s Medicare beneficiaries live longer than did their predecessors does not necessarily translate into higher costs for the Medicare program. The source of this apparently counterintuitive proposition is the panoply of programmatic limitations that Medicare imposes on its coverages, regarding the myth that Medicare pays for long-term care. More specifically, beneficiaries who live longer typically do incur higher cumulative health care costs over their post-sixty-five lifetimes, but many of those costs are not borne by the Medicare program. This phenomenon is well illustrated by the following graph from an important analysis that appeared in The New England Journal of Medicine:

FIGURE 1: Cumulative Health Care Expenditures From the Age of 65 Years Until Death, According to the Type of Health Service and the Age of Death

This graph shows that per-person cumulative health care expenditures—the solid line—rise as a person’s life lengthens. That is, the longer a person lives, the higher the total amount spent on health care expenses during the years after that person reaches age sixty-five, as one might surmise. In analyzing the impact on the Medicare program, however, it is essential to break out the components of total health care costs. Medicare covers most hospital costs but only a limited amount of nursing home expenses. The sum of such nursing home costs—the short-dashed line in the graph—increases with a person’s age, but those costs are generally not part of Medicare’s responsibility. As a result, the cumulative cost borne by the Medicare program actually plateaus around age eighty, meaning that there is virtually no additional cumulative cost to Medicare from a person who lives past age eighty.

Although the article did not attempt to explain this phenomenon, it is possible that after a person reaches some unspecified age, certain very expensive medical interventions are unlikely to succeed or may no longer be appropriate for other reasons. Indeed, the following graph from the same article analyzes the sum of health care expenditures for a patient’s final two years of life, once again according to the age at which that person died:

FIGURE 2: Health Care Expenditures in the Last Two Years of Life, According to the Type of Health Service and the Age at Death.

As this graph shows, the total cost of nursing home care during a person’s last two years is extremely sensitive to that person’s longevity and rises steadily as that person’s attained age increases. But the cost of that patient to Medicare during those final two years actually decreases. As the article concluded, “longevity after the age of 65 has a larger effect on the costs of nursing home care […] than on the costs of services covered by Medicare.” Thus, the increasing number of persons eligible for Medicare in the future will certainly increase that program’s costs, but their increasing longevity is itself a benign factor. Or as Harvard economist David Cutler concluded, “longer life in itself will not add to Medicare costs.”

Richard Kaplan is the Peer and Sarah Pedersen Professor of Law at University of Illinois College of Law. This is an excerpt from his  “Top Ten Myths of Medicare,” which was originally published in The Elder Care Journal, and originally appeared in The Medicare Newsgroup.

18 replies »

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  3. Dennis, you always have solid info.

    However my particular post about high cost beneficiaries was not aimed at Part D at all. I believe that the most expensive drugs in these cases are administered in the hospital and covered in Part A.

    bob hertz

  4. OK, now I have the answer to a few of my questions below but not the most important one (why include nursing home custodial-care costs in the analysis at all?). It turns out that if I had ignored the instructions on the web site URL provided by the author that implied you have to pay for the referenced document, it would have download for free.

    So when you download the author’s article you will find that the New England Journal of Medicine article he cited was printed in 2000 (13 years ago) and is apparently based on 17- to 25-year-old data. That answers my question as to why prescription drug costs and home services are not included in “Medicare Services.” They weren’t “Medicare services” back on 1996, the year on which at least part of the 2000 NEJM article is based. Some of the NEJM analysis was based on 1987 data. (Also “other services” includes Durable Medical Equipment which was not then but is now covered by Medicare.)

    Next I had to read the NEJM article referenced in the author’s article to find how a cumulative number decreases. And the answer is that the NEJM authors made up the number for those seniors in Figure 1 above (those over about age 90) where the dotted line trends down because there was no data on anyone older than 87. And in making up the number for those higher than 87, they of course included in their calculations the obvious fact that for anyone older than 90 in 1996, there was no Medicare when they turned 65. So that explains how a cumulative number trended down. (Of course, that would not apply to anyone today unless they are over 110.)

    I am glad it was just a simple easy to find explanation like this.

  5. Usually when someone cites the New England Journal of Medicine (or any source), they cite the date of publication and author(s). Instead you reply with a long winded lawyer’s answer saying you will not answer the questions:

    — How does the cumulative cost of “Medicare services” decrease? (How does the cumulative cost of anything in this context decrease?)

    — Why make a distinction between “Medicare services,” prescription drug costs and home care when all three are “Medicare services?”

    — Why include nursing home custodial-care costs in the analysis at all when they have never ever been paid for by Medicare and are irrelevant to whether baby-boomer Medicare costs will break the Medicare bank?

  6. The sentence immediately preceding Figure 1 clearly indicates the source of that graph as an article in The New England Journal of Medicine, which is widely acknowledged as the leading medical journal in this country. The full article from which my post is excerpted is hyperlinked in the bio paragraph at the end of the post, so readers can download my article, including its citations, without charge. The specific citation in question appears on page 29 of my article. — R.L. Kaplan

  7. It is a difficult dilemma as surely everyone has a right to be looked after in old age but if the money is not available its a hard fact. I remember reading an article in the NY Times a few years back which stated in the current economic recession the money available in the medicare fund would run out in 2017. Obama has already said he does not want to finance expanded health coverage by increasing deficit spending, but savings have got to be made some how.

  8. Bob —

    Lumping the drug companies in with Scooterworld is a little harsh. Also I don’t want to weigh down the following with too much detail but remember that Medicare drug spending does not just go to drug companies; it also goes to insurance companies, PBMs and drug stores.

    The major expense in Part D (almost 50%) goes to give effectively free drugs to 10,000,000 low income seniors — whether in the initial spend phase, the donut hole or in the catastrophic coverage category. This done through what is known as the Social Security Low-Income Subsidy (LIS) program, direct subsidies and “reinsurance.” Before Part D, low income seniors got their effectively free drugs from Medicaid. For low income seniors, Part D did not change the aggregate cost of drugs to government; it just shifted the whole expense onto the Federal government (whereas previously the cost was 50%).

    Under Medicaid, prior to Part D, low income seniors only had access to a limited drug formulary similar to the limited formulary that the VA hospital/clinic system negotiates with drug manufacturers. President Obama has has the “ounce of courage” to suggest returning low income seniors to that old two-tier system of drug coverage. (It appears low income seniors were not big contributors to his campaign.)

    The second biggest chunk of Part D money (around 33% of the total spend) provides mostly generic drugs to about 25,000,000 seniors along with protection lest we fall into the third category described below. Preliminary indications are that this program has reduced the costs of Parts A, B and C. I am not saying the savings realized here cancel out the cost shown here but that is a possible long-term outcome. Perhaps we will never know if proposals by many Democrats (not Obama) to kill Part D ever pass.

    The third chunk of Part D money (less than 25%) provides fewer than a million non-low-income seniors with catastrophic coverage (and beginning this year provides a little bit of donut hole coverage). It would certainly be unfair not to give these middle- and high-income seniors the same expensive life-saving drugs that low income seniors get especially since the middle and high income senors are paying a share of the cost of the Part D program and the low income seniors are not (high income seniors are paying a much higher share proportionately).

    However, if Obama is successful in restoring the two-tier drug formulary for low-income seniors, it would then be fair to make middle and high income seniors go back into the private insurance market to protect themselves the way they did before Part D. If you added up the number of Medicare beneficiaries served in each of the three spend buckets, you will notice that many seniors already stick with the private market. About 25% of seniors do not sign up for Part D (of course, some of them choose no drug coverage at all).

  9. Given that the author is a Professor I must be missing something.

    Figure 1 — from some unknown source — supposedly shows cumulative per-capita spending by age. How can cumulative per-capita spending for Medicare services decrease after 80? By definition, a cumulative total of anything has to at least stay the same if it doesn’t increase. Do I have to start giving money back to Medicare after 80? Maybe it means that I will spend less on Medicare services after 80 than I pay the government in Part B premiums (but because the source is not provided, we’ll never know)? I think what Figure 1 really means is that someone that made it to 100 was very healthy throughout their whole life and Medicare spent less on him or her cumulatively than those that died at 85, 90 and 95 (but just guessing at this).

    But this confusing presentation is the least of the problems with this author’s analysis. Medicare has never paid for custodial care at nursing home so including it, especially with the rapidly rising trend line, is intellectual deceit. The fact that non-Medicare-related custodial nursing-home cost increases rapidly with age doesn’t change the fact that — all other things being equal — we baby boomers are going to break the Medicare bank based purely on the sheer number of us and our need for all the other services shown in the illustration (all of which are partially paid for by Medicare so not sure why all are not called “Medicare services”)

    So — again — “Dear Professor, Huh?”

  10. Based on my amateur research, 25% of all Medicare spending went to just about 600,000 beneficiaries. (out of 50 million on the program)

    These 600,000 had transplants, open heart surgeries, etc, and the aversge payment from Medicare was $200,000 apiece.

    As this author suggests, these persons were not over age 80. In fact the highest spending person in all of Medicare last year ($2.1million) was a 50 year old disabled man with numerous heart surgeries.

    The fastest way to hold down Medicare spending to slash the largest claims. On most of these claims, the doctor’s fees are a tiny part of the total.
    The real price gouging comes from drug companies, device companies, and hospitals.

    If only the Obama administration had two ounces of courage to challenge them.

    Bob Hertz, The Health Care Crusade

  11. Reduce costs? Not all are compatible with our right-wingers, but (a) eliminate fee-for-service, (b) eliminate for-profit hospitals, (c) eliminate fraud, (d) get doctors off drug/device company payrolls, and (e) better management. Fee-per-hour might work better, or salaried physicians.

  12. Thanks- good and important post.

    Even though Medicare costs may not be profoundly impacted by increased longevity the coming economic burdens are huge.

    Two thoughts-

    -We need to “die well -late in life” (the so-called “hocky stick” death curve)

    – Every US citizen deserves as dignified and as painfree a death as bio-medicine has to offer

    Dr. Rick Lippin

  13. No, but it WILL increase costs. UNLESS our politicians find other places to spend the money (like on, say, Fat Cat projects who bribe their campaigns!). If you want to save Medicare, put the politicians on it.