The Cost of an Additional Disability-Free Life Year for Older Americans: 1992–2005

Health spending on older Americans ages 65 and over has grown much faster than the size of its population since the inception of Medicare. Older Americans increased from 9.4 percent of the population in 1963 to 12.6 percent in 2000, but spending has nearly doubled from 19.7 to 39.2 percent of total medical spending (Meara, White, and Cutler 2004). As millions of baby boomers enter old age over the next two decades, the Medicare program is expected to face substantial fiscal challenges. This is particularly onerous because it happens at a time when total health care spending already consumes nearly 18 percent of GDP in 2010 (Martin et al. 2012), the highest among all OECD countries (OECD Health Data 2011). While the social and economic benefit of improved longevity is indisputable (Murphy and Topel 2006), many analysts believe that such rapid spending growth on older Americans is evidence of excessive spending given relatively poor performance in mortality trends (e.g., Muennig and Glied 2010). A recent study reported that the average cost for an additional year of life for 65-year olds was $145,000 for 1990–2000 (Cutler, Rosen, and Vijan 2006). If both longevity and spending were discounted as recommended, the estimate would be even higher (Garber and Skinner 2008), implying excessive cost for longevity gains among older Americans. Although improvement in mortality is an important health outcome, it is often more useful to know whether the added life years are concentrated in good or poor health. If the drop in old-age mortality is mostly achieved by merely extending the life of those suffering from chronic and debilitating diseases, rather than by avoiding their onset and/or reducing their severity, then it may be difficult to argue that growth in health care spending is associated with improved health quality of life. To properly assess the effectiveness of health spending on older Americans, it is therefore necessary to use an outcome measure that takes into account trends in both the quantity and the quality of life. Health is multidimensional concept and health quality of life can be measured in many different ways (Cutler and Landrum 2011). But in considering their relation to growth in health care spending, two trends among older Americans stand out. One is that the rise in the treated prevalence of chronic conditions and the growth of elderly with multiple conditions explained a substantial part of spending growth in recent decades (Thorpe 2006; Thorpe et al. 2010). Another is that old-age disability has been declining steadily since 1980s to late 1990s (Freedman et al. 2004), thanks largely to earlier diagnosis and improved care of chronic conditions (Schoeni, Freedman, and Martin 2008). A recent study reported that spending among the least disabled elderly has grown more quickly than among the most disabled in 1992–2000, even though the former experienced more growth in chronic conditions (Chernew et al. 2005). Taken together, it is reasonable to believe that the rise in health spending on the elderly has contributed to the declines in old-age disability, which is commonly regarded as the consequence of debilitating chronic diseases (Guralnik, Fried, and Salive 1996). For this reason, trends in disability-free life expectancy (DFLE)—the expected number of remaining life years spent without disability (Robine et al. 1996)—is a more appropriate measure than life expectancy (LE) for evaluating the effectiveness of health spending in the United States. In this analysis, I used a multistate life table (MSLT) model to estimate changes in DFLE and LE between two representative panels of older Americans—one in 1992 and the other in 2002, as well as changes in their cumulative (i.e., from current age to death) health spending. The results indicated that the gains in DFLE were larger than gains in LE during the study period 1992–2005. As a result, the cost of gaining an additional disability-free life year was substantially less than the cost of gaining an additional life year.