DataBrief No. 23: Medicare Spending by Quintile

Medicare Spending by Quintile
In 2006, one-third of Medicare beneficiaries in the top quintile of spending had both chronic conditions and functional impairment?
DataBrief Series ● October 2011 ● No. 23

Medicare Spending By Quintile
In 2006, Medicare spent $198 billion on health services for seniors in the fee-for-service, or the traditional Medicare program. This was 80% of total fee-for-service Medicare spending in 2006.1
Medicare pays for health care services, such as physician visits, inpatient and outpatient visits, prescription medicines, rehabilitative services such as skilled nursing facility stays and home health care services, and hospice care.
Spending on health care services varies greatly among Medicare beneficiaries. The highest-spending quintile, or top 20% of seniors, accounted for 74% of the total Medicare spending on beneficiaries age 65 and older.1
Seniors with chronic conditions and functional impairment are among the most expensive Medicare beneficiaries. Thirty-two percent of Medicare beneficiaries in the highest-spending quintile had both chronic conditions and functional impairment. In comparison, only 6% of beneficiaries in the lowest-spending quintile had both functional impairment and chronic conditions.1
Of all the beneficiaries with both chronic conditions and functional impairment, 44% were in the top spending quintile while only 8% of them were in the lowest spending quintile. In comparison, of beneficiaries with only chronic conditions, 15% were in the top quintile and 18% were in the lowest quintile.1
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1 Avalere Health, LLC. Analysis of the 2006 Medicare Current Beneficiary Survey, Cost and Use file. Excludes beneficiaries who died during 2006.
DataBrief (2011) ● No. 23

Over 30% of Medicare’s Top Spenders Have Both Chronic Conditions and Functional Impairment
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Distribution of Beneficiaries within Each Medicare Spending Quintile,1 by Chronic Conditions and Functional Impairment2
1 N = 24.8 million beneficiaries age 65 and older with any spending. Excludes beneficiaries who died during 2006. Each quintile represents 5.0 million
beneficiaries. Total Medicare spending for beneficiaries aged 65 and older = $198 billion.
2 Functional impairments are defined as 1+ Activity of Daily Living (ADL) and/or 3+ Instrumental Activity of Daily Living (IADL).

A Clear Policy Connection
This analysis is based on the 2006 Medicare Current Beneficiary Survey (MCBS) Cost and Use file, an annual, longitudinal survey of a representative sample of all Medicare enrollees. The MCBS collects information on Activities of Daily Living (ADLs), Instrumental Activities of Daily Living (IADLs), health services utilization, and health spending.
Individuals who indicated that they had ever been diagnosed with any of the following conditions, were considered to have chronic conditions: arthritis, Alzheimer’s Disease, broken hip, cancer (excluding skin), congestive heart failure, depression, diabetes, hypertension, mental illnesses (excluding depression), myocardial infarction and other heart conditions, osteoporosis, Parkinson’s Disease, pulmonary diseases such as emphysema, asthma and Chronic Obstructive Pulmonary Disease, and stroke.
In this analysis, individuals who indicated that they received help or standby assistance with one or more ADLs and/or three or more IADLs were considered to have functional impairment.
This analysis is limited to individuals age 65 or older who were enrolled in the fee-for-service, or traditional, Medicare program. It excludes beneficiaries who had no health spending in 2006 or were enrolled in a managed care plan at any time during the year. These analyses also exclude Medicare beneficiaries who died during 2006.
Seniors with both chronic conditions and functional impairment are among the most vulnerable and expensive Medicare beneficiaries. In addition to their health care needs, these individuals often also require long-term services and supports (LTSS) to assist in every day activities. LTSS is primarily paid for by Medicaid, out-of-pocket payments, long-term care insurance (LTCi), or is provided by family caregivers. The fragmentation of the health care and LTSS systems can be a barrier to care coordination for seniors with chronic conditions and functional impairment. This in turn can lead to gaps in coverage and poorly managed care which could contribute to high Medicare expenditures.
To improve care delivery and reduce unnecessary health service use and spending, policymakers should target this very vulnerable and high-cost population. One example of such an initiative is the Independence at Home demonstration project included in the Affordable Care Act. Independence at Home aims to deliver in-home medical and social services to Medicare beneficiaries with both multiple chronic conditions and functional impairment. The goal is to use a team-based care approach to reduce unnecessary hospitalizations and improve quality of care. This demonstration is scheduled to begin in January 2012 and run for three years.1 Providers should consider participating in this innovative demonstration, and developing other ways to meet the complex medical and social needs of this population.
1Centers for Medicare and Medicaid Services. Independence at Home Demonstration
Fact Sheet. 2011. Accessed on August 24, 2011 at:
https://www.cms.gov/DemoProjectsEvalRpts/downloads/IAH_FactSheet.pdf.
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DataBrief No. 23: Medicare Spending by Quintile

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