Advancing Medical Technology Likely to Greatly Inflate Future Medicare Costs

For Release

September 26, 2005

New medical technology is likely to further inflate future Medicare costs, posing great financial risk to the program, according to a RAND Corporation study issued today.

Emerging treatments such as implantable defibrillators for heart ailments or drugs to prevent Alzheimer's disease could boost spending significantly, with single treatments potentially increasing costs by as much as 70 percent, according to a series of RAND Health reports published online by the journal Health Affairs.

“An array of new medical technology on the horizon could greatly inflate elderly health care spending,” said Dana Goldman, director of health economics at RAND Health and leader of the research. “This technology is valuable because it will improve health and extend lives. But we need to begin thinking about how to pay for it.”

Some savings may be expected if disability rates among the elderly continue to drop. But those savings probably will be overshadowed by increased spending on healthy elderly recipients who will live longer, according to one of the RAND papers.

Some cost savings may be possible if the nation can reduce the number of Americans who are obese. Medicare costs among obese seniors are significantly higher and the number of obese Medicare recipients is rising, according to the studies.

The elderly currently spend more than $300 billion on health care annually. Most of this is paid for by Medicare, which provides health insurance to Americans age 65 and older.

The warnings about a potential sharp rise in elderly spending are from a series of studies using a detailed model of Medicare spending created by Goldman and other researchers from RAND Health, Stanford University and the Greater Los Angeles VA Healthcare System.

Researchers examined the spending increases that might face the elderly through 2030 under a number of different scenarios, including potential cost spikes caused by 10 new medical technologies that a panel of experts said are likely to emerge during the period.

Some of the technologies would have small impacts, including cancer vaccines and better treatments for acute stroke, each of which is predicted to increase elderly health care spending by less than 1 percent.

But other technologies could trigger major cost increases. For example, researchers estimated what the cost might be of expanding use of implantable defibrillators, which are devices implanted in patients' chests to treat life-threatening heart beat problems. The devices show promise in treating other cardiac ailments, including heart attacks and heart failure.

If half of the patients with new cases of heart failure or heart attacks received the devices, elderly health care spending would rise by $14 billion in 2015 and by $21 billion in 2030, according to researchers. The increase would amount to almost 4 percent of total spending.

Other new technologies could cost even more. A preventive treatment for Alzheimer's disease or new cancer-fighting drugs could each increase elderly spending 8 percent, and anti-aging compounds — an area of active research in biomedicine — could drive up costs from 14 to 70 percent, according to the studies.

“Would you rather have today's health care at today's cost, or 1980s health care at 1980s cost?” Goldman said. “I think all of us want today's technology and the technology that will be developed in the future. But improved technology will cost us even more in the future.”

Another report authored by RAND economist Geoffrey F. Joyce determined that even if the incidence of chronic diseases among the elderly can be reduced, Medicare is not likely to see much savings.

Examining seven different chronic diseases such as diabetes and heart disease, researchers found that the long-term costs to Medicare for treating these ailments was relatively low, in large part because patients with chronic diseases die several years earlier than others.

If chronic diseases are eliminated in younger Medicare recipients, cumulative costs for each recipient will remain similar as people live longer. In addition, many people will develop the same diseases as they live longer, negating cost savings, according to the study.

One disease-prevention program that might help trim Medicare costs would be an effort to target obesity, according to a third paper authored by RAND economist Darius Lakdawalla.

While obese elderly people live about as long as those of normal weight, they are also much more likely to be disabled, according to the RAND study. A 70-year-old obese person can expect four years of disability-free life, while a normal-weight 70-year-old can expect seven years.

The average medical expenses of an obese 70-year-old will be about $38,000 more over his or her lifetime than a normal-weight person, according to the RAND study. These findings suggest that a less-obese population may cost Medicare significantly less.

The computer model used in the RAND studies was assembled using a representative sample of about 100,000 Medicare beneficiaries from the Medicare Current Beneficiary Survey, a national effort that asks Medicare beneficiaries about chronic conditions, use of health care services, medical care spending, and health insurance coverage. Each beneficiary in the sample is linked to Medicare claims records to track actual medical care use and costs over time.

The RAND model also incorporates information about younger people into the model, allowing researchers to gauge the impact of future Medicare recipients as well as current recipients. Those cases were selected from the National Health Interview Study.

Funding for the studies was provided by the federal Centers for Medicare and Medicaid Services and the National Institute on Aging, through its support of the RAND Roybal Center for Health Policy Simulation, the RAND Center for the Study of Aging, and the Stanford Center for Demography and Economics of Health and Aging. Funding also was provided by the UCLA Claude D. Pepper Older Americans Independence Center.

Other authors of the RAND studies are: Baoping Shang, Michael Hurd and Emmett B. Keeler of RAND; Alan M. Garber and Jayanta Bhattacharya of Stanford University; Constantijn Panis of Deloitte and Touche; and Paul Shekelle of RAND and the Greater Los Angeles VA Healthcare System.

RAND Health is the nation's largest independent health policy research program, with a broad research portfolio that focuses on health care quality, costs, and delivery, among other topics.

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