Disability and Spending Growth
Michael E. Chernew, Dana Goldman, Feng Pan, and Baoping Shang
Almost one of every six elderly Medicare beneficiaries suffers from some disability (U.S. Department of Health and Human Services 2004). Reductions in the prevalence and severity of disability could have dramatic effects on well-being; moreover, because the disabled spend more on health care than the nondisabled, lower rates of disability could reduce medical spending (Liu, Wall, and Wissoker 1997, Chan et al. 2002). For example, using data on Medicare beneficiaries between 1992 and 2000, Chernew et al. (2005) report that on average, the total medical care spending of people with one or two Activities of Daily Living (ADLs) was about twice that of nondisabled elderly. In contrast, people with five or more ADLs incurred four to five times the medical care spending of people without disability. Similarly, Cutler and Meara (1999) report that expenditure for persons with five or more activity limitations was nearly five times the amount incurred by those with Instrumental Activities of Daily Living (IADL) conditions.
Several studies in the health services literature posit that reduced disability levels in the future will lead to considerable cost savings. For example, Waidmann and Liu (2000) suggest that if disability rates continue
Michael E. Chernew is professor in the Department of Health Care Policy at Harvard Med-
ical School, and a research associate of the National Bureau of Economic Research. Dana
Goldman holds the RAND Chair in Health Economics and is Director of Health Econom-
ics at RAND. He is also a Professor of Health Services and Radiology at University of Cali-
fornia, Los Angeles, and a research associate of the National Bureau of Economic Research.
Feng Pan is a research associate at the United BioSource Corporation. Baoping Shang is a re-
search associate in the Health Policy Center at the Urban Institute in Washington, D.C.
We are grateful for financial support from the National Institute on Aging grants P30
AG12810 and R01 AG19805, and the Mary Woodard Lasker Charitable Trust and Michael E.