Modeling Health Care Spending Growth of Older Adults

Abstract

Objective. To forecast out-of-pocket health care spending among older adults. Longterm forecasts allow policy makers to explore potential impacts of policy scenarios, but existing microsimulations do not incorporate details of supplemental insurance coverage and income effects on health care spending. Data Sources. Dynamic microsimulation calibrated to survey and administrative data. Study Design. We augment Urban Institute's Dynamic Simulation of Income Model (DYNASIM) with modules that incorporate demand responses and economic equilibria, with dynamics driven by exogenous technological change. A lengthy technical appendix provides details of the microsimulation model and economic assumptions for readers interested in applying these techniques. Principal Findings. The model projects total out-of-pocket spending (point of care plus premiums) as a share of income for adults aged 65 and older. People with lower incomes and poor health fare worse, despite protections of Medicaid. Spending rises 40 percent from 2012 to 2035 (from 10 to 14 percent of income) for the median beneficiary, but it increases from 5 to 25 percent of income for low-income beneficiaries and from 23 to 29 percent for the near poor who are in fair/poor health. Conclusions. Despite Medicare coverage, near-poor seniors will face out-of-pocket spending that would render them, in practical terms, underinsured. Key Words. Health care costs, health insurance, Medicare beneficiaries, simulationsIn spite of the recent spending slowdown, many analysts predict health care spending growth will rebound (Keehan et al. 2015). This presents a particular problem for those aged 65 and older, many of whom live on fixed incomes ( Jacobson et al. 2015). Nearly all (95 percent) of these individuals are Medicare beneficiaries, but absent other subsidized insurance, they share costs through significant premiums, deductibles, and copayments. Medicare covers about 80 percent of spending, which is slightly less than a typical large

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