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Health Care Costs and Financing

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Medicare's role in financing nursing home care has greatly expanded

Medicare's role in financing nursing home care greatly expanded in the 1990s compared with the 1980s, according to a study by Jeffrey A. Rhoades, Ph.D., and John P. Sommers, Ph.D., of the Agency for Healthcare Research and Quality. They examined data from the 1987 National Medical Expenditure Survey Institutional Population Component (IPC) and the 1996 Medical Expenditure Panel Survey (MEPS) Nursing Home Component (NHC). Both are nationally representative surveys that detail the characteristics of nursing homes and their residents, as well as use of and expenses for nursing home care.

Survey data showed that total annual expenses for nursing homes increased from $28 billion in 1987 to $70 billion in 1996, a 150 percent increase. Annual expenses per resident increased from $13,866 in 1987 to $22,561 in 1996, representing a 63 percent increase. Mean expenses per day increased from $56 in 1987 to $118 in 1996, an increase of 111 percent.

The major sources of payment for total annual nursing home expenses shifted from 1987 to 1996. Medicare payments represented the greatest change between the 2 years, going from 2 percent of all payments for nursing home care in 1987 to 19 percent in 1996. The total share of expenses paid by Medicaid was 49 percent in 1987 and 44 percent in 1996.

As Medicare's financing role increased, there was an accompanying decline in the proportion of expenses that residents paid out of pocket. In 1987, 45 percent was paid out of pocket versus 30 percent in 1996. Nursing home residents using Medicare most heavily as a source of payment tended to have very short stays (33 days on average), zero limitations in activities of daily living such as dressing or walking, and no mental conditions.

See "Trends in nursing home expenses, 1987 and 1996," by Drs. Rhoades and Sommers, in the Fall 2003 Health Care Financing Review 25(1), pp. 99-114.

Reprints (AHRQ Publication No. 04-R023) are available from the AHRQ Publications Clearinghouse.

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