Among the pre-Medicare population, the primary source of health insurance is private coverage. In the first half of 2012, nearly 69 percent of individuals in this population were privately insured. An additional 13 percent of individuals obtained coverage through government programs such as Medicaid. However, a significant portion—more than 18 percent—was uninsured. Previous research has demonstrated that individuals with health insurance coverage tend to be in better health than individuals without coverage. However, research regarding the extent to which having prior health insurance coverage affects spending and use of medical services after enrolling in Medicare has produced inconsistent results. For example, one group of researchers found that having prior insurance was linked to lower spending and lower rates of hospitalization after enrolling in Medicare, while another group of researchers found that having prior insurance had no effect on beneficiaries’ spending or rates of hospitalization after Medicare enrollment.researchers found, however, that beneficiaries without prior insurance were less likely to visit physician offices and more likely to visit hospital emergency and outpatient departments after enrolling in Medicare, which could indicate that beneficiaries without prior insurance continued to access the health care system differently after Medicare enrollment. This latter group of Subsequent commentary and analysis by both research groups suggests that the conflicting results may be primarily attributable to different definitions of prior insurance and different analytical approaches to control for differences in beneficiaries with and without prior insurance. The group that found that having prior insurance was linked to lower spending used a more rigorous definition of prior insurance based on a longitudinal assessment of insurance coverage before age 65 rather than a point-in- time assessment. This group included beneficiaries who were enrolled in Medicare, Medicaid, and other government health programs before age 65 in its analysis and used a statistical weighting methodology to control for the possibility of reverse causality between health status and insurance coverage. More specifically, some individuals may have experienced declining health before age 65 that led to loss of employment, loss of private insurance coverage, and subsequent enrollment in government health programs. The group that did not find that having prior insurance was linked to lower spending criticized the inclusion of these beneficiaries, noting that many individuals transition to government health programs before age 65 because of poor health, thereby resulting in an overestimate of the effect of having prior insurance on their Medicare spending after age 65. These researchers also criticized the statistical weighting methodology used to control for the possibility that beneficiaries entered these programs because of poor health, contending that the data used in the weighting methodology were not sufficiently detailed to adequately adjust for this possibility. Beneficiaries with prior continuous insurance were more likely than those without prior continuous insurance to report being in good health or better in the 6 years after Medicare enrollment. On average, the predicted probability of reporting being in good health or better in the first 2 years in Medicare was approximately 84 percent for beneficiaries with prior continuous insurance and approximately 79 percent for beneficiaries without prior continuous insurance. Although the predicted probabilities of beneficiaries who reported being in good health or better decreased over time for both those with and without prior continuous insurance, the percentage point difference increased slightly. In total, having prior continuous insurance raised the predicted probability that a beneficiary reported being in good health or better by nearly 6 percentage points in the first 6 years after Medicare enrollment. (See table 1.) According to previous research, there are reasons why Medicare beneficiaries with prior continuous insurance may be healthier than those without prior continuous insurance. Because of financial constraints, beneficiaries without prior continuous insurance may have difficulty accessing medical services that could help them improve their health before they enroll in Medicare. In addition, being uninsured before Medicare may have effects on beneficiaries’ health that remain for some time. For example, if a beneficiary without prior continuous insurance is diagnosed with diabetes and has inadequate access to care before Medicare, the beneficiary may develop complications that increase the risk for adverse health events for years to come, even after the diabetes is controlled. There were differences in Medicare spending and use of services between beneficiaries with and without prior continuous insurance. In particular, compared with beneficiaries without prior continuous insurance, beneficiaries with prior continuous insurance had significantly lower total spending during the first year in Medicare. Beneficiaries with prior continuous insurance had lower total program spending during the first year in Medicare compared with those without prior continuous insurance.Medicare, average predicted total spending for beneficiaries with and without prior continuous insurance was $4,390 and $6,733, respectively— a difference of $2,343, or 35 percent. Because the difference in total spending was the greatest during the first year in Medicare, it is possible that beneficiaries without prior continuous insurance had a pent-up demand for medical services in anticipation of coverage at age 65. Table 2 shows predicted spending, as well as the difference in predicted spending, during the first 5 years in Medicare for beneficiaries with and without prior continuous insurance. Beneficiaries with prior continuous insurance had more physician office visits during the first 5 years in Medicare than those without prior continuous insurance. Specifically, during the first 5 years in Medicare, the difference in the average predicted number of physician office visits between beneficiaries with and without prior continuous insurance ranged from 1.3 to 2.5, or 23 to 46 percent (see table 4). This utilization pattern may indicate that, even after Medicare enrollment, beneficiaries with prior continuous insurance continued to access medical services differently compared with those without prior continuous insurance. For example, beneficiaries with prior continuous insurance may have been more likely to have physician office visits before Medicare if their insurance covered these visits. According to our analyses, the number of institutional outpatient visits was similar for beneficiaries with and without prior continuous insurance. However, because we found that beneficiaries without prior continuous insurance had higher institutional outpatient spending, it is possible that they required more costly outpatient care than beneficiaries with prior continuous insurance. Previous research regarding the extent to which health insurance coverage prior to Medicare enrollment affects beneficiaries’ spending and use of services after enrollment has been inconclusive, possibly because of different definitions of prior insurance and different approaches for dealing with the potential for reverse causality between health status and health insurance coverage. Like researchers who did not find significant differences in Medicare spending between beneficiaries with and without prior insurance coverage, we excluded individuals who were enrolled in government health programs prior to age 65 from our analysis because of the possibility that they lost insurance coverage because of poor health, which could have resulted in an overestimate of the effect of having prior insurance on Medicare spending after age 65. However, like researchers who did find significant differences in Medicare spending between these groups, we used a more rigorous definition of prior insurance based on a longitudinal assessment of insurance coverage before age 65 rather than a single point in time. Using our methodology, we found significant differences in Medicare spending between beneficiaries with and without prior continuous insurance. This study adds to the body of evidence suggesting that beneficiaries with prior insurance used fewer or less costly medical services in Medicare compared with those without prior insurance, because they either were in better health or were accustomed to accessing medical services differently. In particular, we found that beneficiaries with prior continuous insurance were more likely than those without prior continuous insurance to report being in good health or better in the 6 years after Medicare enrollment. Additionally, we found that beneficiaries without prior continuous insurance had higher total and institutional outpatient spending but did not have higher spending for physician and other noninstitutional services, suggesting that they required more intensive medical services or that they were accustomed to visiting hospitals more than physician offices. This suggests that the extent to which individuals enroll in private insurance before age 65 has implications for beneficiaries’ health status and Medicare spending. We provided a draft of this report to the Department of Health and Human Services for review. In written comments, reproduced in appendix II, the department highlighted a key finding in our report that beneficiaries with prior insurance used fewer or less costly medical services in Medicare compared with those without prior insurance. As arranged with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to appropriate congressional committees and the Administrator of the Centers for Medicare & Medicaid Services (CMS). The report also will be available at no charge on GAO’s website at http://www.gao.gov. If you or your staffs have any questions regarding this report, please contact me at (202) 512-7114 or cosgrovej@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix III. This appendix describes the data and methods we used to address our research objectives. We used data from the Health and Retirement Study (HRS) and Medicare claims. HRS is a longitudinal panel study that surveys a representative sample of more than 26,000 Americans over the age of 50 every 2 years. We used a subset of HRS data from 1996 through 2010 to obtain information on beneficiaries’ health insurance coverage before Medicare, health status in Medicare, demographic characteristics, potential health risk factors, and diagnoses of health conditions. Because HRS data are survey data, these data were self- reported. We also used data from the Medicare Beneficiary Annual Summary Files and the Medicare Denominator Files from 2001 through 2010 to obtain information on Medicare spending and use of services. We worked with Acumen, LLC, to link beneficiaries’ HRS data with their Medicare data and to conduct statistical analyses of their spending and use of services. We assessed the reliability of the HRS and Medicare data and determined that the data were adequate for our purposes. We conducted our work from July 2011 to December 2013 in accordance with generally accepted government auditing standards. To determine whether Medicare beneficiaries had continuous health insurance coverage before Medicare, we used HRS data to develop a composite measure. We categorized beneficiaries as having prior continuous insurance if they reported receiving private insurance through their employer or their spouse’s employer in the three consecutive HRS surveys before Medicare enrollment at age 65—a period spanning approximately 6 years. To analyze beneficiaries’ health status in Medicare, we collapsed the HRS self-reported health status measure, which uses a scale from 1 (excellent) to 5 (poor), to two categories. We classified beneficiaries as being in good health or better if they reported being in excellent, very good, or good health. We also used HRS data to develop a set of independent variables for our analyses. Specifically, we used data on demographic characteristics (census division, education level, income, marital status, race, and sex), potential health risk factors (body mass index and smoking status), and ever having had a diagnosis of any of eight health conditions (arthritis, cancer, diabetes, heart problem, high blood pressure, lung problem, psychological problem, and stroke). To analyze beneficiaries’ spending and use of services, we used data from the Medicare Beneficiary Annual Summary Files. In particular, we obtained data on total, institutional outpatient, institutional inpatient, home health, and physician and other noninstitutional spending; institutional outpatient and physician office visits; and hospital stays. We also used enrollment data from the Beneficiary Annual Summary Files and Medicare Denominator Files to determine which beneficiaries to include in our analyses of spending and use of services. Because we used HRS data on beneficiaries’ self-reported health status that were collected about every 2 years, we defined three groups of beneficiaries, drawn from multiple survey years spanning 2001 through 2010, who were in (1) their first and second years of Medicare, (2) their third and fourth years of Medicare, and (3) their fifth and sixth years of Medicare (see fig. 1). This approach allowed us to measure the effect of prior continuous insurance on self-reported health status at three points in time after Medicare enrollment. Because we used Medicare data on beneficiaries’ program spending and use of services that were collected every year, we defined five groups of beneficiaries who were in their first, second, third, fourth, and fifth years of enrollment from 2001 through 2010 (see fig. 2). This approach allowed us to measure the effect of prior continuous insurance on spending and use of services for beneficiaries in each of the first 5 years of Medicare enrollment. For all of our analyses, we excluded beneficiaries from our study populations because of missing data and design and methodological issues. Specifically, we excluded beneficiaries who died before age 65; beneficiaries who were over age 65 as of January 31, 2001; beneficiaries who did not participate in all three HRS surveys in their pre-Medicare period; and beneficiaries who did not respond to relevant HRS questions about insurance during their pre-Medicare period. We excluded beneficiaries who were enrolled in Medicare or Medicaid before age 65 because their enrollment in these programs may have been due, at least in part, to poor health, which would indicate that their health status affected their insurance coverage rather than the other way around. We chose to exclude these beneficiaries to avoid overestimating the effects of having prior continuous insurance on health status, spending, and use of services. In addition, we excluded beneficiaries who reported receiving coverage from the Veterans Health Administration before age 65 because their Medicare spending and use of services might not fully represent their overall use of medical services. For our analyses of spending and use of services, we applied additional exclusion criteria to define our study populations. We excluded Medicare Advantage beneficiaries because they did not have fee-for-service data that could be linked to HRS data. In addition, we excluded beneficiaries who were not enrolled in both Medicare Parts A and B for all months they were alive during a given year because we did not have complete information on their spending and use of services. After the exclusions, the number of beneficiaries in our three study populations for our health status analyses ranged from 3,201 for the first group to 2,001 for the third group. The number of beneficiaries in our five study populations for our analyses of spending and use of services ranged from 1,592 for the first group to 1,152 for the fifth group. To examine the relationship between Medicare beneficiaries’ prior continuous insurance and their self-reported health status, we used logistic regression analysis. In particular, we modeled beneficiaries’ self- reported health status during three periods after Medicare enrollment. We also predicted probabilities of their reporting being in good health or better assuming both that they did and that they did not have prior continuous insurance. In all of our analyses, we included the following independent variables: prior continuous insurance, demographic characteristics, potential health risk factors, and ever having had a diagnosis of any of eight health conditions. See table 5 for an example of results from one of the three models that we conducted for our analyses of health status. To examine the relationship between Medicare beneficiaries’ prior continuous insurance and their spending and use of services, we used generalized linear models because our spending and service variables had skewed distributions and a high proportion of zero values. For example, for beneficiaries in their first year of Medicare enrollment, 30 percent of beneficiaries in our study population had no institutional outpatient visits and therefore no institutional outpatient spending. We modeled total, institutional outpatient, and physician and other noninstitutional spending and institutional outpatient and physician office visits for beneficiaries in each of the first 5 years of Medicare enrollment. We predicted values for these variables assuming both that beneficiaries did and that beneficiaries did not have prior continuous insurance. In all of our analyses, we included the following independent variables: prior continuous insurance, demographic characteristics, potential health risk factors, ever having had a diagnosis of any of eight health conditions, and the number of months a beneficiary was alive during the year. For our spending analyses, we used the price index from the Personal Health Care Expenditure component of the CMS National Health Expenditure Accounts to express all spending in 2011 dollars. This approach adjusted for inflation by removing the effects of health care price-level changes between 2001 and 2010. See table 6 for an example of results from 1 of the 25 models that we ran for our analyses of spending and use of services. Because we used multiple exclusion criteria to define our study populations, our results might not be representative of the entire Medicare population. To compare our study populations with the entire Medicare population, we examined certain characteristics of these populations— gender, race, and census division (see tables 7 and 8). We selected these characteristics because data on these characteristics were available in each of the data sources that we used. Because we only had access to Medicare Denominator File data for 2003 through 2010, we compared characteristics for beneficiaries in their first or second year of Medicare enrollment from 2003 through 2010. On the basis of this analysis, we determined that our study populations and the entire Medicare population were comparable. However, we noted small differences between the populations. For example, compared with the entire Medicare population, our study populations included slightly higher percentages of females. We excluded Medicare beneficiaries who were enrolled in Medicaid before age 65 from our primary analyses because their enrollment in this program may have been due, at least in part, to poor health. To determine the effect, if any, of removing these beneficiaries from our analyses, we conducted supplementary analyses of Medicare spending and use of services that included these beneficiaries. Results for most of the dependent variables (e.g., total spending, physician and other noninstitutional spending, physician office visits, and institutional outpatient visits) were similar to our original results. However, beneficiaries with prior continuous insurance only had lower institutional outpatient spending during the first year in Medicare, rather than during the first and second years in Medicare, when we included these beneficiaries. In addition to the contact listed above, Christine Brudevold, Assistant Director; George Bogart; David Grossman; Elizabeth T. Morrison; Aubrey Naffis; and Eric Wedum made key contributions to this report.

Summary: Nearly 7 million individuals aged 55 to 64--more than 18 percent of the pre-Medicare population--lacked health insurance coverage in the first half of 2012. Health insurance protects individuals from the risk of financial hardship when they need medical care, and uninsured individuals may refrain from seeking necessary care because of the cost. If they forgo medical care beforehand, these individuals may be in worse health and need costlier medical services after enrolling in Medicare compared to those with prior insurance. GAO was asked to review the effects of having prior health insurance coverage on Medicare beneficiaries. This report examines the health status, program spending, and use of services of Medicare beneficiaries with and without continuous health insurance coverage before Medicare enrollment. To examine the effects of beneficiaries' prior insurance coverage, GAO used data from the Health and Retirement Study and Medicare claims to conduct two types of multivariate analysis. GAO predicted probabilities of beneficiaries' reporting being in good health or better and values for program spending and beneficiaries' use of services. In comments on a draft of this report, the Department of Health and Human Services highlighted a key finding in GAO's report that beneficiaries with prior insurance used fewer or less costly medical services in Medicare compared with those without prior insurance. Beneficiaries with continuous health insurance coverage for approximately 6 years before enrolling in Medicare were more likely than those without prior continuous insurance to report being in good health or better during the first 6 years in Medicare. In particular, having prior continuous insurance raised the predicted probability that a beneficiary reported being in good health or better by nearly 6 percentage points during the first 6 years in Medicare. Beneficiaries with prior continuous insurance had lower total program spending during the first year in Medicare compared with those without prior continuous insurance. Specifically, during the first year in Medicare, beneficiaries with prior continuous insurance had approximately $2,300, or 35 percent, less in average predicted total spending than those without prior continuous insurance. Similarly, beneficiaries with prior continuous insurance had lower institutional outpatient spending--for example, spending for services provided in a hospital outpatient setting--during the first and second years in Medicare compared with those without prior continuous insurance. In contrast, physician and other noninstitutional spending--spending for services provided by physicians, clinical laboratories, free-standing ambulatory surgical centers, and other noninstitutional providers--were similar during the early years in Medicare for beneficiaries with and without prior continuous insurance. However, during the fourth and fifth years in Medicare, beneficiaries with prior continuous insurance had physician and other noninstitutional spending that was about 30 percent higher than beneficiaries without prior continuous insurance. Beneficiaries with prior continuous insurance had more physician office visits during the first 5 years in Medicare compared with those without prior continuous insurance. Specifically, during the first 5 years in Medicare, the difference in the average predicted number of physician office visits between beneficiaries with and without prior continuous insurance ranged from 1.3 to 2.5, or 23 to 46 percent. This utilization pattern may indicate that, even after Medicare enrollment, beneficiaries with prior continuous insurance continued to access medical services differently from those without prior continuous insurance. The number of institutional outpatient visits was similar for beneficiaries with and without prior continuous insurance for the first 5 years after Medicare enrollment. Taken together, GAO's results show that, consistent with those of some other researchers, beneficiaries with prior continuous insurance used fewer or less costly medical services compared with beneficiaries without such insurance during the early years in Medicare, because they either were in better health or were accustomed to accessing medical services differently. This suggests that the extent to which individuals enroll in private insurance before age 65 has implications for beneficiaries' health status and Medicare spending.