The Impact of Disability Trends on Medicare Spending

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Abstract

Relatively little is known about the implications for Medicare spending of downward trends in old age disability in the United States between the mid-1980s and the end of the century. This is in part because uncertainty persists about the extent to which the aggregate disability declines reflect improvements in health versus improvements in the technology, service, and physical environment. This study examines Medicare spending and utilization that occurred over the period of declining disability between 1984 and 1999 and how it differed from what might have been expected had disability not changed and discusses implications for the relationship between disability, Medicare spending, and health. Projections are developed under various assumptions about how disability and spending are likely to change over the over the next several years.

Introduction

It is now generally agreed that there has been a significant decline in the elderly disability rate in the United States since the early 1980s (Spillman 2004; Freedman, Martin, and Schoeni 2002; Schoeni, Freedman and Wallace 2001; Manton and Gu 2001; Waidmann and Liu 2000; Waidmann and Manton 1998). Much less is known about the implications of the decline for Medicare spending. This is in part because uncertainty persists about the extent to which the aggregate disability decline reflects improvements in health rather than improvements in the environment in which the disabled elderly function. If declines are not due--or not entirely due--to improvements in health, this in turn suggests uncertainty about the implications of disability declines for future Medicare costs. In particular, the projections of the magnitude of any beneficial impacts of disability declines on future spending may be overstated to the extent that disability declines reflect environmental accommodation rather than better health.

Consistent with evidence in other studies, Spillman (2004) found a clear downward trend in the aggregate prevalence of disability in the older American population from 1984 to 1999. This decline was not monolithic, however. Trends differed for different aspects of disability.

• Most of the decline occurred for those reporting chronic help with only instrumental activities of daily living (IADLs)--activities such as housekeeping and meal preparation associated with the ability to live independently.
• The prevalence of chronic disability managed solely with the use of assistive devices increased significantly.
• There was, at most a modest reduction in assistance with activities of daily living (ADLs), which are associated with poorer health and more serious disability.
• The trend in the prevalence of institutional residence was flat.

Moreover, much of the disability decline was attributable to such IADLs as money management and shopping, which have seen dramatic advances in technology and services over the last two decades. When both human help and equipment use were considered, no individual ADL declined in prevalence. Bathing was the sole ADL for which there was a significant decline in human assistance, and in that case, the decline was offset by an increase in use of assistive devices. Support for this finding with respect to ADL disability was found in a project designed to examine and resolve apparent inconsistency in elderly ADL disability trends across several data sources (Freedman et al. 2004). In that study, consistent evidence was found of decline in disability defined as help with ADLs during the 1990s but not when disability was defined as using either help or equipment to perform ADLs. Although other studies have not examined individual activities, the finding that declines are concentrated at the lower end of the disability spectrum also is consistent with other evidence (Schoeni, Freedman and Wallace 2001; Waidmann and Liu 2000).

The purpose of this study is to better understand the relationship between disability declines and Medicare costs, and what Medicare spending patterns may suggest about the relationship between disability and health. To that end, the study examines actual patterns of Medicare spending and utilization that occurred over the period of declining disability between 1984 and 1999 and how they differ from what might have been expected had disability not changed. Data are Medicare records merged to four waves of the National Long-Term Care Survey (NLTCS), a nationally representative survey of the Medicare elderly used in Spillman (2004). Spending is examined in the aggregate, by service, and by type of disability, and implications for the relationship between disability, Medicare spending, and health are discussed. Based on the results, Medicare spending projections are developed under various assumptions about how disability and spending are likely to change over the over the next several years.

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