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.