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Longevity and Health Care Expenditures

The Real Reasons Older People Spend More

^a Department of Health Policy and Administration, University of North Carolina, Chapel Hill
^b Health Economics Research Unit, University of Aberdeen, Scotland

Edward C. Norton, Department of Health Policy and Administration, CB #7411, University of North Carolina at Chapel Hill, Chapel Hill, NC 27599-7411 E-mail: edward_norton{at}unc.edu.

Decision Editor: Charles F. Longino, Jr., PhD

Objectives. In this study, we investigated the relative contributions of both age and time to death to health care expenditures for elderly Medicare beneficiaries. We also analyzed differences in expenditure patterns by age and time to death for various service types and payers.

Methods. We conducted graphical analysis of person-month level data on 25,994 elderly persons from the 1992–1998 Medicare Current Beneficiary Survey Cost and Use files.

Results. Monthly health care expenditures for elderly people increase substantially with age primarily because mortality rates increase with age and health care expenditures increase with closeness to death. Time to death is the main reason for higher inpatient care expenditures, whereas aging is the main reason for higher long-term care expenditure.

Discussion. Both increases in the absolute number of elderly persons and in their longevity will increase future Medicare expenditures. Yet, the expected increase in per person health care expenditures caused by greater longevity of Medicare beneficiaries will be less than expected because of the concentration of expenditures at the end of life rather than during extra years of a relatively healthy life. The latter conclusion may be altered, however, because of other underlying considerations, such as technological change.