Sick To Death > Chapter 1 > Costs and Who Pays
Most people who are sick enough to die have insurance coverage. More than four-fifths have Medicare (Hogan et al. 2000). Another group has veterans' benefits or employer-sponsored insurance. Those who have lived in poverty, or who become impoverished as part of their illness, qualify for Medicaid. Among the rest, probably half die relatively young and quickly from infections, accidents, and violence. So no more than a tenth die of serious chronic illness in conventional employer-sponsored insurance or without insurance. Federal funding and regulation dominate care for serious chronic illness in America.
The real costs of care are hard to calculate. Medicare's payments average about $28,000 in the last year of a person's life (Emanuel et al. 2002). Given that Medicare now pays about half of the costs (Maxwell, Moon, and Segal 2001; Lubitz et al. 2003), the average total cost is around $50,000 for the last year of life. Private payments or Medicaid, not Medicare, cover most of nursing-home care, long-term paid support at home, and prescription drugs. On average, people now are seriously ill for much more than one year (Lynn, Blanchard, et al. 2002). Two years is probably the average for self-care disability, but some are disabled for more than a decade. Compared to younger people, older Medicaid beneficiaries use less medical and hospital treatment as they die but more long-term care (Scitovsky 1988).
Medicare spends about half as much for the last year of life for people dying past ninety years old as for those sixty-five to seventy-five (Bird, Shugarman, and Lynn 2002). Yet it spends comparatively more for the second and third years before older people's death (Shugarman et al. 2004). Older patients are disabled longer and their end-of-life expenditures are lower per year, but their illnesses often continue for years (Spillman and Lubitz 2000; Lubitz and Riley 1993). Hence people who die at seventy-three and ninety-three, for example, cost Medicare nearly the same amount (Lubitz et al. 2003).
While costs earlier in life show substantial disparities, Medicare's costs for the last year of life average almost the same for the poor and the rich, for blacks and whites, for women and men, and for people dying of stroke, heart failure, emphysema, or cancer (Shugarman et al. 2004). Since substantial disparities affect most of health care (Collins et al. 2002), that last year of life is a surprising leveler. Age continues to be a substantial factor, as outlined earlier. Geography also shapes expenses (Dartmouth Atlas of Health Care 1998), with much lower costs in Oregon than in New York, for example.
Medicare's costs for the last year of life have been stable at about 26 percent of the program budget for two decades (Hoover et al. 2002). The costs per capita for Medicare have increased, even when adjusted for inflation, but the costs in the last year of life are no different from any others in this regard (Barnato et al. 2004). Population growth, population aging, and added coverage for those with disabilities, end-stage renal failure, and amyotrophic lateral sclerosis (or Lou Gehrig's disease) have increased the number of people in Medicare from under twenty million in 1966, as the program got under way, to over forty million in 2002 (U.S. Department of Health and Human Services 2003).
As many analyses have found, payments for Medicare-covered services in any given year are highly concentrated among a small number of beneficiaries who have multiple chronic conditions and whose medical care is extremely expensive (Hogan et al. 2000; Crippen 2002). While end-of-life costs have remained stable as a proportion of Medicare outlays over time (Lubitz and Riley 1993; Hogan et al. 2000), Medicare payments for the last year of life averaged about $28,000, six times the per capita cost for survivors. The costliest 5 percent of beneficiaries consumed about half of total Medicare spending, and the costliest 25 percent consumed almost 90 percent. While such beneficiaries are more likely to die than the average beneficiary, many of those who live continue to have high costs in later years as a result of chronic medical conditions. About 84 percent of all Medicare beneficiaries have at least one chronic condition, and 62 percent have two or more chronic conditions (Anderson, Horvath, and Anderson 2002). Long-term-care expenditures for older U.S. residents with disabilities (including those receiving nursing-home or community-based care) totaled $123 billion in 2000, with more than 65 percent paid by the government (Crippen 2002). Of the $1.2 trillion spent in 2001 on personal health care, about $0.1 trillion went to nursing-home care (Walker 2002), and $0.9 trillion went to the noninstitutional care of those with chronic conditions (Anderson, Horvath, and Anderson 2002). In constant dollars, these expenditures were expected to double before 2040, even without the inclusion of prescription drugs in Medicare in 2003 (Hoffman and Rice 1995, 9).
Long-term-care services have become an important part of health- care costs, growing from 3.3 percent in 1960 to 10.8 percent in 1995 (Employee Benefit Research Institute 1997). Funds come from a combination of sources, which include federal, state, local, private insurance, and out-of-pocket. Approximately $137 billion was spent in 2000 on long-term care (Walker 2002), with 37 percent coming from patients and families (without including the costs for unpaid family caregivers or wages lost because of caregiving). Medicaid pays for about half of institutional long-term care (Stone 2002).
A recent estimate of total lifetime health-care costs from multiple data sources shows that half of all expenditures occur past age 65; and for those who live to age 85, more than one-third of costs are incurred in remaining years (Alemayehu and Warner 2004). As the authors point out, these data starkly illuminate the challenge of growing numbers of older Americans.