Longevity and Medicare expenditures

In the United States, the elderly account for over one third of health care spending. The total population over the age of 65 is projected to increase, as is life expectancy beyond the age of 65. We studied current patterns of Medicare expenses according to age at death and the possible effect of future demographic changes on Medicare spending.

We used data from the Medicare program to estimate lifetime Medicare expenses for a sample of 129,166 beneficiaries, 65 or older, who died in 1989 and 1990, according to age at death. Spending for nursing home care not covered by Medicare was excluded. (Nursing home costs represent about 20 percent of total health care spending for the elderly and increase with age.) Through simulation, we assessed the lifetime payments by Medicare for enrollees who turned 65 in 1990 and those who will do so in 2020.

Estimated lifetime Medicare payments (in 1990 dollars) ranged from $13,044 for persons who died at 65 years of age, to $56,094 for those who died at 80, to $65,633 for those who died at 101 or older. The payments associated with an additional year of life and the average annual payments over an enrolle's lifetime both decreased as the age at death increased. The estimated 7.9 percent increase in life expectancy beyond 65 years that will have taken place between 1990 and 2020 (19.1 years past the age of 65 in 2020, as compared with 17.7 years in 1990) was associated with an estimated increase of 2.0 percent in lifetime Medicare payments. Of the estimated $98 billion increase in total lifetime payments (in 1990 dollars) from the 1990 group to the 2020 group, 74.3 percent was due to the larger size of the original birth cohort who will reach the age of 65 in 2020, 22.5 percent to an increase in the proportion of that birth cohort projected to survive to 65 years of age, and 3.2 percent to improved life expectancy beyond 65.

The effect on Medicare spending of increased longevity beyond the age of 65 may not be great. Total Medicare payments will be more substantially affected by the expected increase in the absolute number of elderly people.