Medicare, Hospital Utilization and Mortality: Evidence from the Origins of the Federal Program

The Medicare program that provides universal health insurance to the elderly came into effect in July of 1966. The four decades since have witnessed a tremendous increase in the complexity of the health insurance market – including the availability of Medicare for the non-elderly disabled and Medicaid for the elderly poor, and the presence of multiple health insurance policies once an individual ages into Medicare eligibility (e.g., Medigap). This complexity renders problematic the exact interpretation of results on Medicare’s impact using recent data and generated exclusively by relying on the discontinuity in Medicare eligibility at age 65. We estimate the changes in health care utilization and mortality rates that occurred after the original introduction of Medicare. Analyzing the impacts for this period allows for a cleaner interpretation of the estimated effects and the subpopulations affected. We bring together the most comprehensive and detailed data ever used to address this question, including: 1) hospital discharge data with age and cause of admission from 1963-on; 2) mortality rates by cause and narrowly-defined age categories for the United States, United Kingdom, Canada, France and Japan from 1950-on; and 3) mortality microdata with cause and age for the U.S. from 1959-on. These data allow for an analysis that utilizes the “age discontinuity” design of one set of studies, while accounting for pre-existing trends as done in another set of more aggregated research. Our findings reveal i) clear evidence that Medicare increased hospital care utilization and costs among the elderly (particularly for acute conditions), but at a lower rate than previously found; ii) significant reductions in the mortality of the eligible population (relative to the ineligible) that exhibit an age discontinuity only after the introduction of Medicare – patterns not found in countries that did not introduce a Medicare-style program in the 1960’s; iii) a reduction in rates of restricted activity, and iv) the sharpest mortality reductions in acute causes of death (e.g., heart disease), with little reduction in causes of death less amenable to immediate hospital admission (e.g., malignant neoplasms). We estimate that Medicare’s introduction had a cost-per-life year ratio below $200 (in 1982-84 dollars), with a lower cost ratio for quality-adjusted life years. In the four decades since Medicare’s introduction, we find that the benefits of the program on health have, in general, declined. We examine possible reasons underpinning the reduced cost-effectiveness of Medicare over time. First, we find that the characteristics of the “marginal” person- who gains health insurance by turning 65- have changed over time. We find that the poor and the disabled- groups with arguably the maximum benefit from access to health care- have been increasingly covered by health insurance programs even before turning 65. We find that the 65-and-over insurance discontinuity fell over time, and that the rates of decline were highest among blacks, the less-educated, poor and disabled. Second, we also find an increase during the 1980s in the use of coronary artery bypass graft (CABG) surgery on the Medicare eligible, possibly due to an increase in the relative Medicare reimbursement rate for this procedure. This provides suggestive evidence that an increase over time in the use of expensive procedures may have contributed to the rise in Medicare costs.