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Health Care Costs and Financing

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Over the period 1963-2000, per person spending on health care grew most rapidly among those aged 65 and older

During the nearly 40-year period from 1963 to 2000, medical spending grew fastest among the elderly relative to the nonelderly. There was rapid growth in per person spending among the elderly from 1963 to 1987. This trend then reversed during the next decade, reflecting Medicare reforms that reduced fees for hospital stays, physician services, and home care services, particularly skilled nursing care, notes Chapin White, Ph.D., of the National Bureau of Economic Research in Cambridge, MA.

In a study that was supported in part by the Agency for Healthcare Research and Quality (T32 HS00020), Dr. Chapin and his colleagues used data from five national household surveys to estimate the fraction of spending accounted for by different age groups. The surveys included the 1963 and 1970 surveys of Health Services Utilization and Expenditures and three AHRQ-sponsored surveys, the 1977 National Medical Care Utilization and Expenditure Survey, the 1987 National Medical Expenditure Survey, and the 2000 Medical Expenditure Panel Survey.

Spending for the two most costly types of services—hospital care and physician and clinical services—grew more rapidly among the elderly than among the nonelderly during 1963-1987, but it then slowed to 0.8 percent growth per year for hospital care and 1.9 percent per year for physician and clinical services during 1987 to 1996. While growth in hospital spending was slow for nonelderly and elderly age groups during 1996-2000, spending for physician and clinical services for the elderly accelerated to 5.1 percent per year compared with 2.6 percent among the nonelderly.

Home health care spending trends also differed dramatically by age and time period. Following the Balanced Budget Act of 1997, Medicare payments to home health agencies fell dramatically, as reflected in the 12.5 percent annual decline in elderly spending on home health during 1996-2000. From 1987 to 1996, per person spending for prescription drugs grew 6.4 percent annually for the nonelderly and 6 percent annually for the elderly. This spending continued to accelerate from 1996 to 2000, growing 13.8 percent annually for the nonelderly and 10.3 percent annually for the elderly.

See "Trends in medical spending by age, 1963-2000," by Ellen Meara, Ph.D., Dr. White, and David M. Cutler, Ph.D., in the July 2004 Health Affairs 23(4), pp. 176-183.

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