EOL and Economics
© Allen C. Goodman, 2003
Two types of thoughts
• Your body is like a car
• Incremental costs and incremental benefits
A car?
• It starts out new and shiny
• Works well, needs low maintenance
• Doesn’t need much in repairs
and then?
or
or worse!
How do we look at this?
• If we make investments,
they cost us money, but
they provide benefits to
us.
• We do the easiest (least
costly) ones first.
E
C
D
A B
Investments
How do we look at this?
• As for benefits …
E
• Which projects do we
do?
C
D
A B
Investments
Marginal
costs
How do we look at this?
• It’s easy … and
not usually bad, to
re-draw these as
lines.
Marginal
benefits
E
C
D
A B
Investments
The body as a capital good
• Economists look at health as a capital good.
• We invest in it through:
– Good nutrition
– Exercise
– Medical care
• This is a major contribution of Fuchs in Who Shall Live.
• His Utah/Nevada comparison highlights quality of life
issues.
Fuchs -- Utah/Nevada
Excess Death Rates (Nevada - Utah)
Age Group
<1
1-19
20-39
40-49
50-59
60-69
70-79
Males
42%
16%
44%
54%
38%
26%
20%
Females
35%
26%
42%
69%
28%
17%
6%
Back to your body as a car …
• When new, it works well, requires routine
maintenance.
• What do you replace regularly?
– Tires, breaks, filters, etc.
• As it ages, what happens?
– It becomes more expensive to keep up.
As we age?
• Marginal benefits
may decrease …
we’ll enjoy them
over a shorter
future.
• Marginal costs may
increase … we’re
depreciating!
Mc´
Marginal
benefits (mb)
Mb´
Later
Early
Marginal
costs (mc)
Investments
Result
• We may invest less … and it may cost more.
• There are many EOL decisions that are
implicitly … or explicitly … framed in
marginal benefit, marginal cost terms.
What can we say about EOL costs?
• About 1/4 (27%) of Medicare costs are for the last
year of life, unchanged from 20 years ago.
• “High cost of dying” is the cost of caring for
severe illness and functional impairment.
Joanne Lynn, Christopher Hogan, June Lunney, and Jon Gabel,
"Medicare beneficiaries' costs of care in the last year of life,"
Health Affairs 20(4), (July 2001): 188-195.
Thru mid-1990s
• Decedents’ per capita Medicare program outlays
were about 6 times higher than outlays for
survivors.
• Why? A typical decedent suffered from nearly
four serious diseases in the last year of life, while
survivors averaged slightly more than one in a
typical calendar year.
Diseases and costs
• About 3/4 of decedents had some mention of heart
disease; about 1/3 had cancer, stroke, chronic
obstructive pulmonary disease or
pneumonia/influenza; about 1/4 had some form of
dementia.
• Yet, when compared with similarly old and sick
survivors, decedents had less than 30% higher
medical costs during last year of life.
• Why? More likely episode of nursing home care
… less likely use (at the end) of expensive
hospital care
Additional Research
• 1992-1996 Medicare
Beneficiary Study.
Dollars ($1996)
• However, portion of
Medicare expenses on
last year of life was
26%, similar to other
study.
End of Life Expenditures
40000
35000
30000
25000
20000
15000
10000
5000
0
Last Year of Life
Medicare Expenses Last Year
Other Years
Donald R. Hoover, Ph.D., M.P.H., Steven Crystal, Rizie Kumar, M.S., et al.,
"Medical expenditures during the last year of life: Findings from the 1992-1996 Medicare
current beneficiary survey,“Health Services Research 37(6) (December 2002 ): 1625-1642.
Last year of life expenses constituted …
• 22% of all medical,
• 26% of Medicare,
• 25% of Medicaid,
• 18% of non-Medicare expenses
Additional non-Medicare expenses are directed toward
facility-based management of chronic conditions preceding
death rather than to acute terminal conditions.
As elderly population increases, average real EOL expenses
will probably change little, but portion paid by nonMedicare sources supporting chronic and custodial care
will likely rise
Thoughts?