Disability forecasts and future Medicare costs

Abstract

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.

Figure 1:

Forecasted Prevalence of Disability among 65+ population.

Figure 2:

Forecasted Prevalence of Disability Among 65-74 year-olds.

Figure 3:

Forecasted Disability Rates Among 75-84 year-olds.

Figure 4:

Forecasted Disability Rates Among 85+ Population.

Figure 5:

Forecast Error in NHIS, 1990-1996.

Figure 6

Figure 7

Figure 8:

Forecasts of Per Capita Monthly Medicare Costs by Age Group.

Figure 9:

Forecasts of Total Monthly Medicare Costs by Age Group.

Figure 10:. Impact of Disability Forecasts on Per Capita Medicare Costs.

Notes: This figure shows projections of per capita Medicare costs under four scenarios as described in the text. The “base” case is our projection incorporating information on disability trends from the NHIS (for the young) and the MCBS (for the elderly). The “constant” case assumes fixed age-prevalence profiles for disability. The other two cases assume changes in the elderly age-prevalence profile based on trends observed in the National Long Term Care Survey and ignore NHIS trends among the young.