Disability Forecasts and Future Medicare Costs

Jay Bhattacharya , Stanford University and NBER
David Cutler, Harvard University and NBER
Dana P. Goldman, RAND Corporation and NBER
Michael Hurd, RAND Corporation and NBER
Geoff Joyce, RAND Corporation
Darius Lakdawalla, RAND Corporation and NBER
Constantijn Panis, RAND Corporation
Baoping Shang, RAND Corporation

Abstract

The traditional focus of disability research has been on the elderly, with good reason. Chronic disability is much more prevalent among the elderly, and it has more direct impact on the demand for medical care. However, it is also important to understand trends in disability among the young, particularly if these trends diverge from those among the elderly. These trends could have serious implications for future health care spending, since more disability at younger ages almost certainly translates into more disability among tomorrow’s elderly, and disability is a key predictor of health care spending. Using data from the Medicare Current Beneficiary Survey and the National Health Interview Study, we forecast that that per capita Medicare costs will decline for the next fifteen to twenty years; this is in accordance with recent projections of declining disability among the elderly. However, by 2020, the trend reverses. Per capita costs begin to rise due to growth in disability among the younger elderly. Total costs may well remain relatively flat until 2010, and then begin to rise, as per capita costs will cease to decline rapidly enough to offset the influx of new elderly people. Overall, cost forecasts for the elderly that incorporate information about disability among today’s younger generations yield more pessimistic scenarios than those based solely on elderly data sets; this information should be incorporated into official Medicare forecasts.