Objectives. This article used a new data source to examine the issue of disability trends among elderly persons and examined the potential implications of these trends on future health and long-term care needs.Methods. We used the 1992-1996 Medicare Current Beneficiary Survey to examine time trends in rates of activities of daily living and instrumental activities of daily living disability and physical limitation among Medicare beneficiaries aged 65 and over. We used multinomial logit and least squares regression techniques to produce trend estimates that held the age, sex, race, and educational distributions constant and projected these trends into the future. Finally, we estimated the potential impact of disability decline on per capita Medicare spending on elderly persons.Results. We found that disability among elderly persons is declining and that the trend toward a more educated elderly cohort explains some, but not all, of this decline. In the absence of downward disability trends, per capita Medicare expenditures would have grown even faster than they have.Discussion. Although the decline in disability prevalence in recent years appears real, whether it continues has enormous implications for the size of the disabled population in the future and for the ability of the society to care for its disabled elderly members.NDERSTANDING trends in health and disability in older adult populations is crucial for public policy debates on pensions, retirement, and future health care spending. Considerable research has been done to gain such understanding. Some reports of trends in health and disability status have generated alarm about the possibility of rising disability rates, and other reports have produced relief from the prospect of falling rates. It is possible that both increasing and decreasing disability prevalence can be observed in the same population if trends are measured at different periods of time. However, attempts to reconcile these disparate observations raise important methodological questions about measurement of health and disability status over time.

Use of formal sources of care by community disabled elderly residents increased, likely because of changes in the Medicare home health care benefits in 1989. Increased use of home health care was associated with the concurrent use of informal care.

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The 1981-1982 National Long-Term Care Channeling Demonstration Project data revealed that the mean annual cost per capita for home and institutional care for cognitively impaired persons was +18,500. The equivalent figure for cognitively intact persons was +16,650. Cognitively impaired persons used nursing homes at twice the rate of cognitively intact persons. Use differences for other health services were slight. A pre- and post-nursing home admission analysis indicated that for the cognitively impaired the annual cost of community care was +11,700, whereas the cost of nursing home care was +22,300.

Age-related changes in functional status can be summarized by active life expectancy (ALE) measures. ALE is useful in assessing efforts to improve function and in determining a population's service needs. ALE disaggregates total life expectancy (TLE) into components representing degree and type of impairment. We illustrate the calculation of two ALE measures and their relations to health inputs and service use. First, scores are calculated from 27 measures of function for persons 65 and over, as reported in the National Long Term Care Survey (NLTCS). The scores are then used to calculate the two ALE measures. Results are compared to ALE calculated from the 1982, 1984, and 1989 NLTCS.

Widely studied as a predictor of long‐term care use, functional disability is also an important explanatory variable for acute care costs spent for the elderly. As policy makers contemplate ways to control rapidly growing Medicare expenditures, such as increasing the enrollment of beneficiaries into managed care programs, knowledge about the relation between functional disability and Medicare costs is likely to become more important for the design of program features. The research described here uses data from the new Medicare Current Beneficiary Survey to estimate the relation between functional disability and Medicare costs, the effects on costs of interactions between disability and other personal characteristics of beneficiaries, and changes in the level of disability and Medicare costs.