Incorporating Time to Death into Medicare FFS A+B Projections

Liming Cai, Ph.D

Andrew Madison

Office of the Actuary

Centers for Medicare and Medicaid Services

Middle Atlantic Actuarial Club Annual Meeting

September 13, 2012

2

Outline The age-sex adjustment

The age-sex-time to death (TTD) adjustment

Data

Methods

Results

Conclusion

Discussion

3

Medicare FFS Spending Projection Medicare FFS population

Per capita FFS spending Short run

Demographics Price updates Residuals

Long run Demographics Residuals

4

The Demographic Adjustment by Age and Sex Calculate average spending for 65+ by sex and

5-year age groups (except for 85+) relative to average spending for all 65+ over a three-year base period (2008-2010)

For each of the next 75 years, multiply the fixed relative spending estimates by the age distribution of beneficiaries to derive weighted average relative spending

Multiply this relative spending by average spending in a base year (2010 for TR 2012) and the number of beneficiaries in the year for which spending is projected to derive total Medicare spending projections

T

t

ytty NavgTotal $$

5

Assumptions and Implications of the Age-Sex Adjustment Assumes future 85+ as expensive as today’s

85+, holding everything else constant Total spending is driven by the age-sex

distribution of future beneficiaries only As mortality rates fall and people live longer,

there are more expensive elderly, and hence higher spending

1999

2003

2007

2011

2015

2019

2023

2027

2031

2035

2039

2043

2047

2051

2055

2059

2063

2067

2071

2075

2079

2083

2087

5.00%

10.00%

15.00%

20.00%

25.00%

Proportion of 85+ in FFS Part A (SSA TR2012)

6

Average AB Spending Varies by Age

65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 101

103

105

0

2000

4000

6000

8000

10000

12000

14000

16000

Age

1997

2002

2006

2010

Source: CMS 100% claims file. FFS AB spending on aged-in benes only.

7

Why Are 85+ More Costly? Closer to death – demographic reason

65 68 71 74 77 80 83 86 89 92 95 98 101

104

107

110

113

116

119

0

0.2

0.4

0.6

0.8

1

Age

Men

Women

2012 mortality rate at ages 65-119 (SSA TR2012)

8

Why Are 85+ More Costly? End of life care is expensive – non-

demographic reason Recent OACT study, Riley and Lubitz (2010, HSR)

– 25-30% stable since 1970s

0 1 2 3 4 5 6 7 8 9

10 11 12 13 14 15

0

10000

20000

30000

40000

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

1992 19931994 19951996 19971998 19992000 20012002 20032004 20052006 2007

Year Before Death

Part

AB

Spen

ding

(200

8 $)

Source: 1992-2008 MCBS. Decedents only. Year measured as 12-mo interval.

9

Calculation of Avg. Spending at Age t Average spending at age t can be calculated

as

i.e., the sum of the product of avg. spending at year i before death and the dist. of time to death.

Example: Avg. spending for 85-year old men=$25K

Time to Death (TTD) 0 1 2 3 4+

Dist. of TTD 10% 15% 20% 25% 30%

Average $ 50K 40K 30K 20K 10K

Constant age-specific spending implies fixed time to death distributions at age t.

t

N

j

jtt Navg

t

$$ TTD

i

it

it propavg$

10

SSA TR2012 Projection - Survival Probabilities

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

2010

2035

2085

Pro

babilit

y o

f Surv

ival

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

2010

2035

2085

Age

Pro

babilit

y o

f Surv

ival

Source: SSA TR2012 intermediate projections.

Men

Women

11

SSA TR2012 Projection – Life Expectancy

0

5

10

15

20

25

2010 20352085

Year

26.7%

51.3%

0

5

10

15

20

25

30

2010 20352085

Age

Ye

ar

19.7%

46.1%

Men

Women

Source: SSA TR2012 intermediate projections.

12

SSA TR2012 Projection - Time to Death

0 1 2 3 4 5 6 7 8 9 1011121314151617181920212223242526272829303132333435+

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

2010

2035

Men

0 1 2 3 4 5 6 7 8 9 1011121314151617181920212223242526272829303132333435+

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

2010

2035

2085

Year Before Death

Women

Source: SSA TR2012 intermediate projections.

13

The Age-Sex-TTD Adjustment Adds a 3rd dimension

Spending by TTD, age group, sex and year TTD distribution by age group, sex and year Number of beneficiaries by age group, sex and year

Recognizes that Higher proportion of 85+ is caused by shifts in TTD

dist. Shifts in TTD dist. imply that future 85+ are not as

expensive as today’s 85+, holding everything else constant

TTD is not the same concept as population health Technical Panel in 2000 recommended distinguishing

between decedents and survivors CBO has incorporated TTD into CBOLT

14

Data The IDR 100% sample of beneficiary claims in 2011

1.2 million decedents in 2011 among 28 million “aged-in” benes age 65-115 with equal A & B exposure months. 5.9 million observations of spending of up to 4 years before death

Decedents’ spending in 2007-2010 are inflated to 2011 dollar using OACT’s personal health care spending index

5 age groups: 65-69, 70-74, 75-79, 80-84, 85+

Average spending in TTD=0,1,2,3,4+ weighted by member months, consistent with the age-sex method Decedents’ spending in TTD=0 is actual 2011 $, NOT last-12 mo

$ Average (exposure-weighted) spending in TTD=4+ is calculated

using 2007 spending for all 2011 benes because of large spending differentials in 2007 between decedents and survivors.

15

Average Spending by Time To Death for 2011 Decedents

0 1 2 3 4 -

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

65-6975-7985+

Year Before Death

Male Decedents

0 1 2 3 4 -

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

65-6975-7985+

Year Before Death

Female Decedents

Source: IDR 2011 FFS AB decedents.

16

Projection of FFS AB Spending in 2012-2087 The age-sex method

Relative spending ratios in baseline (2011), by age group and sex, are multiplied by average spending in 2011 ($10,059 for men and $10,084 for women), and the number of beneficiaries in 2012-2087 in the corresponding age group and sex cells

The age-sex-TTD method

Theoretical TTD distributions for 2012-2087, by age group and sex Estimated from SSA TR2012 intermediate life tables using

microsimulation

Average spending of 2011 decedents by age group, sex and TTD are multiplied by the number of beneficiaries in the corresponding age group, sex and TTD cells A set of adjustment factors, by sex and age groups, is applied to

ensure that projected 2011 spending are equal for both methods. Unadjusted difference in 2011 spending is 7% or less due to imperfect information in 2012

17

Projection Results

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039

2040

2041

2042

2043

2044

2045

2046

2047

2048

2049

2050

2051

2052

2053

2054

2055

2056

2057

2058

2059

2060

2061

2062

2063

2064

2065

2066

2067

2068

2069

2070

2071

2072

2073

2074

2075

2076

2077

2078

2079

2080

2081

2082

2083

2084

2085

2086

2087

200

300

400

500

600

700

800

900

1000

1100

$973.85

$869.29

FFS

AB S

pend

ing

(Bill

ion,

in 2

011

dolla

rs) Cumulative difference is $3.77 trillion or 7.21% of

age-sex results (2011 dollars).

Age-Sex-TTD

Note: Calculation based on 2007-2011 IDR data and SSA TR2012 intermediate projections.

Age-Sex

18

Projection Results

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039

2040

2041

2042

2043

2044

2045

2046

2047

2048

2049

2050

2051

2052

2053

2054

2055

2056

2057

2058

2059

2060

2061

2062

2063

2064

2065

2066

2067

2068

2069

2070

2071

2072

2073

2074

2075

2076

2077

2078

2079

2080

2081

2082

2083

2084

2085

2086

2087

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

1.60%

1.80%

2.00%

Year

FFS

AB S

pend

ing

(in 2

011

dolla

rs)

Cumulative difference is 3.37% of GDP.

Age-SexAge-Sex-TTD

Note: Calculation based on 2007-2011 IDR data and SSA TR2012 intermediate projections.

19

Conclusion The age-sex-TTD method projects lower

Medicare spending than the current age-sex method

The age-sex-TTD adjustment Consistent with all SSA demographic assumptions Sets the lower bound of projection

2012

2015

2018

2021

2024

2027

2030

2033

2036

2039

2042

2045

2048

2051

2054

2057

2060

2063

2066

2069

2072

2075

2078

2081

2084

2087

9000

9200

9400

9600

9800

10000

10200

10400

10600

Per

Capit

a S

pendin

g (

2011

Dollar)

Trends in per capita spending implied by the two methods

Age-Sex

Age-Sex-TTD

20

Will the Pattern of Spending by TTD Change?

This stable historical pattern reflects two fundamental principles

What is going to change? Shape – Immortality? Death panel? The answer is No. Level – Very likely due to a variety of factors, which is not part of

demographic adjustment and, more importantly, will affect both methods equally.

0 1 2 3 4 5 6 7 8 9

10 11 12 13 14 15

0

10000

20000

30000

40000

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

1992 19931994 19951996 19971998 19992000 20012002 20032004 2005

Year Before Death

Part

AB

Spen

ding

(200

8 $)

Source: 1992-2008 MCBS Cost and Use files. Decedents only.

21

Remaining Issues Next steps

Separate analysis by types of service – will allow unequal number of enrollees for A & B services. In this preliminary analysis Parts A & B enrollees are assumed equal.

Under 65-year olds?

The endogeneity of TTD distributions Per capita health spending growth will impact

future TTD distributions SSA projections may have underestimated the

negative impact, resulting in overly optimistic projections of future mortality improvement

22

What Kills Us

Source: Death in the US, 2010. NCHS Data Brief, June 2012