[Joint House and Senate Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-690

                   GETTING OLDER, STAYING HEALTHIER: 
                    THE DEMOGRAPHICS OF HEALTH CARE

=======================================================================

                                HEARING

                               before the

                        JOINT ECONOMIC COMMITTEE
                     CONGRESS OF THE UNITED STATES

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 22, 2004

                               __________

          Printed for the use of the Joint Economic Committee



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                        JOINT ECONOMIC COMMITTEE

    [Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress]

SENATE                               HOUSE OF REPRESENTATIVES
Robert F. Bennett, Utah, Chairman    Jim Saxton, New Jersey, Vice 
Sam Brownback, Kansas                    Chairman
Jeff Sessions, Alabama               Paul Ryan, Wisconsin
John Sununu, New Hampshire           Jennifer Dunn, Washington
Lamar Alexander, Tennessee           Phil English, Pennsylvania
Susan Collins, Maine                 Adam H. Putnam,  Florida
Jack Reed, Rhode Island              Ron Paul, Texas
Edward M. Kennedy, Massachusetts     Pete Stark, California
Paul S. Sarbanes, Maryland           Carolyn B. Maloney, New York
Jeff Bingaman, New Mexico            Melvin L. Watt, North Carolina
                                     Baron P. Hill, Indiana
                    Paul A. Yost, Executive Director
                Wendell Primus, Minority Staff Director


                            C O N T E N T S

                              ----------                              

                      Opening Statement of Members

Senator Robert F. Bennett, Chairman..............................     1
Representative Pete Stark, Ranking Minority Member...............     2

                               Witnesses

Kenneth G. Manton, Ph.D., Research Director, Center for 
  Demographic Studies, Duke University, Durham, North Carolina...     4
James Lubitz, M.P.H., Acting Chief, Aging and Chronic Diseases, 
  Statistics Branch, Centers for Disease Control and Prevention, 
  Hyattsville, Maryland..........................................     7
James F. Fries, M.D., Professor of Medicine, Stanford University 
  School of Medicine, Stanford, California.......................     9
Judith Feder, Ph.D., Professor and Dean of Public Policy 
  Institute, Georgetown University, Washington, DC...............    12

                       Submissions for the Record

Prepared statement of Senator Robert F. Bennett..................    27
Prepared statement of Representative Pete Stark, Ranking Minority 
  Member.........................................................    28
Prepared statement of Kenneth G. Manton, Ph.D., Duke University, 
  Center for Demographic Studies.................................    29
Prepared statement of James Lubitz, Acting Chief, Aging and 
  Chronic Diseases, Statistics Branch, National Center for Health 
  Statistics Centers for Disease Control and Prevention, U.S. 
  Department of Health and Human Services........................    53
Prepared statement of James F. Fries, MD, Professor of Medicine, 
  Stanford University School of Medicine.........................    58
Prepared statement of Judith Feder, Ph.D., Professor and Dean, 
  Georgetown Public Policy Institute, Georgetown University......    79

 
                   GETTING OLDER, STAYING HEALTHIER: 
                    THE DEMOGRAPHICS OF HEALTH CARE

                              ----------                              


                        THURSDAY, JULY 22, 2004

             Congress of the United States,
                          Joint Economic Committee,
                                                     Washington, DC
    The Committee met at 10 a.m., in room SD-628 of the Dirksen 
Senate Office Building, the Honorable Robert F. Bennett, 
Chairman of the Committee, presiding.
    Senators present: Senator Bennett (Chairman of the 
Committee).
    Representatives present: Representative Stark.
    Staff present: Tom Miller, Leah Uhlman, Nancy Marano, Brian 
Higginbotham, Zach Jones, Colleen Healy, Wendell Primus, John 
McInerney, Debra Veres, and Nan Gibson.

    OPENING STATEMENT OF SENATOR ROBERT F. BENNETT, CHAIRMAN

    Chairman Bennett. The Committee will come to order.
    Good morning and welcome to the hearing on The Changing 
Demographics of Health Care.
    Today, we will examine long-term trends in the health 
status and health spending levels of elderly Americans.
    We are meeting at a time of various pressures and 
competition for our attention. The 9/11 Commission report is 
coming out this morning. And the Senate has scheduled a series 
of votes starting at 11 o'clock.
    So I've decided to start right on time and see if we can 
get it all done before these other pressures close in on us.
    But I'm grateful to our witnesses for their willingness to 
be here today and share with us their expertise.
    The two most obvious trends are that we are living longer 
and spending more on health care costs. The connection between 
these two trends is complex. It is not a direct cause-and-
effect situation.
    We need to understand it better.
    Some might worry that we're caught on a fiscal treadmill in 
which long life spans beyond the age of 65 will simply add to 
the mounting financial burden of our commitments to fund public 
entitlement programs like Medicare and Medicaid and Social 
Security.
    But that view, in my view, focuses too narrowly on the 
sheer duration of life and the potential costs connected with 
it, without examining the quality and value of extra years of 
life.
    Even though we hear complaints about our health care system 
and are concerned about various indications of unhealthy habits 
and practices, there's a growing body of evidence that suggests 
that Americans are not just living longer--they're also living 
in better health overall.
    We need to understand the implications of that.
    Today's hearing will first take a look at what we know 
about a possible decline in chronic disability rates among the 
elderly and what this trend implies for the future. Then we 
will explore whether it is possible to delay the onset of 
serious illnesses while extending life spans, particularly 
through effective health promotion and disease prevention 
strategies.
    We'll examine how by changing the underlying demand for 
health care services, instead of just trying to control the 
supply of health care, we could affect the future structure and 
financing of our public health programs.
    Finally, we will discuss whether a longer life span, 
combined with better health, can maintain and enhance the vital 
treasure of human capital that we need to maintain a vigorous 
labor force and strong economic growth in an aging society.
    As a personal note, I'm planning to do my part by extending 
my working life at least another 6 years----
    [Laughter.]
    Chairman Bennett [continuing]. If the voters of Utah will 
agree. And that will take me a full 10 years beyond the normal 
retirement age.
    I hope to set a vigorous example.
    Of course, before we paint too rosy a picture of the 
future, we should carefully assess where we've been and where 
we are now.
    So today, we have a panel filled with some of the nation's 
leading experts in the field of health care demographics. We 
hope that they will not only highlight and interpret the data 
for us, but that they will also offer some suggestions as to 
how we can harness the full potential of our current 
investments in health care and health promotion.
    Mr. Stark.
    [The prepared statement of Chairman Bennett appears in the 
Submissions for the Record on page 27.]

    OPENING STATEMENT OF REPRESENTATIVE PETE STARK, RANKING 
                        MINORTITY MEMBER

    Representative Stark. Boy, Mr. Chairman, you had me there 
for a moment. I thought what you said before we paint too rosy 
a picture of the future, you were going to then recognize me.
    I didn't think that was the best way to introduce me.
    [Laughter.]
    Chairman Bennett. Well, I think you too are setting an 
example.
    Representative Stark. Rarely, can I claim to outdistance 
the Chair. But in this particular topic, I must claim 
seniority, experience, if that counts for anything in this 
game.
    When it comes to unhealthy habits and practices, I have a 
suspicion that I know more about that than the Chairman.
    [Laughter.]
    But having said that, I have extended my tenure far beyond 
any normal retirement age. But I have to do it 2 years at a 
time, and I am also going ahead.
    I want to thank you for holding this hearing. I look 
forward to what the witnesses say on a public policy issue.
    I know that Dr. Feder will talk about a need for a 
federally funded program. I have reviewed the marvelous opening 
statement that the staff suggested for me. I'd ask that it 
appear in the record.
    Chairman Bennett. Without objection.
    Representative Stark. But I'd like to take one moment--this 
is something that I did with your colleague, Mr. Kennedy.
    We had a commission a thousand years ago on long-term care. 
One of the concerns, whether it be institutional care or 
supporting care in the home, I can assure the Chair that things 
don't fall off, but they get a little rusty as one gets older.
    Your shoes get further away and steps get higher.
    But it does seem to me, and we'll get into a little 
liberal/conservative conundrum here, that long-term care is the 
poster child of an opportunity for social insurance.
    I want to make a couple of points. Perhaps the witnesses 
will debate this.
    There is no actuarial determination of who may or may not 
need long-term care in any age segment. It's completely random. 
And that pretty much takes the idea of insurance, if you will, 
and particular commercial insurance, off the table.
    Almost all the long-term policies now are nothing but kinds 
of savings, cash-value insurance. Sometimes you get it back, 
sometimes you don't.
    So if it's random, it is beyond the ability of most average 
Americans to pay for it reasonably.
    It doesn't necessarily just hit folks our age. There are a 
lot of 16-year-olds who are dumb enough to ride their bicycles 
or motorcycles without helmets and end up needing care--again, 
a random question.
    Therefore, if we, as we do in other things, have a small 
payment, as small as we can make it, and have a benefit.
    It seems to me that the charges are relatively uniform 
across the country. I don't know as there are huge variations 
in the Medicaid charges now.
    We have an opportunity in this country in one format or 
another to have a social insurance program--you might want to 
income-
relate it. There's a lot of ways that we can look at it.
    But it just seems to me it is a need which nobody disagrees 
exists. And because it comes randomly and because it does these 
things, might very well be a target for some kind of social 
insurance--hopefully, that would be funded by those who would 
use it and not be a burden on the government.
    I'd hope maybe the Chair would at some point in the future 
like to discuss that as possible legislation, assuming we both 
get re-elected, we'll have time to do these sorts of things.
    [Laughter.]
    So I thank you for this hearing. I apologize that I won't 
be able to stay for the full hearing, but I want to commend you 
for getting us going on this topic.
    Thank you very much.
    [The prepared statement of Representative Stark appears in 
the Submissions for the Record on page 28.]
    Chairman Bennett. Thank you, sir.
    You will find in the liberal/conservative clashes around 
here, that's a very mild difference compared to some of the 
others that we've had.
    So we've come a ways.
    Let me introduce the members of the panel and we'll hear 
from you in this order.
    Dr. Kenneth Manton of the Center for Demographic Studies at 
Duke University.
    Dr. Manton is noted for his work on the National Long-Term 
Care Survey, which is a study that emphasizes remarkable 
declines in the prevalence of chronic disability among the 
elderly in recent decades.
    Then we'll hear from James Lubitz of the National Center 
for Health Statistics. Mr. Lubitz has examined the connection 
between increased longevity and health care spending among the 
elderly in a number of articles.
    He suggests that the effects of longevity on Medicare acute 
care services and Medicaid long-term care benefits may in fact 
run in different directions.
    Dr. James Fries of Stanford University. He first coined the 
theory of morbidity compression several decades ago to explain 
how the onset of serious disease and chronic disability may be 
delayed until later in life so that a larger portion of our 
life spans are spent in good health.
    Then Dr. Judy Feder, who is a professor and dean of Policy 
Studies at Georgetown University. She's also a senior scholar 
at Georgetown's Institute of Health Care Research and Policy.
    Dr. Feder previously served 3 years as principal deputy 
assistant secretary at the Department of Health and Human 
Services and has written extensively about the financing of 
Medicare, Medicaid, and long-term care in particular.
    We're honored to have this group of experts with us.
    Dr. Manton, we'll hear from you first.

    OPENING STATEMENT OF KENNETH G. MANTON, Ph.D., RESEARCH 
  DIRECTOR, CENTER FOR DEMOGRAPHIC STUDIES, DUKE UNIVERSITY, 
                     DURHAM, NORTH CAROLINA

    Dr. Manton. Thank you, Mr. Chairman. I'll just highlight my 
statement and be available for questions after the 
presentations.
    My primary areas of research are in mathematical and 
medical demography. My comments are primarily data-driven. I 
won't interpret them very much, but I'll lay out the facts as I 
see them and can answer questions on any aspects or facets of 
that data.
    As you mentioned, my recent research is heavily focused on 
the application of the 1982, 1984, 1989, 1994, 1999 and now, 
the 2004, National Long-Term Care Survey, to health problems of 
the elderly and the Medicare and Social Security systems.
    The Long-Term Care Survey is perhaps unique in the sense 
that it's drawn from a Medicare list sample and covers people 
in all types of residences, including assisted living, as well 
as nursing home.
    We can directly focus on the question of long-term care and 
long-term care insurance. We actually have an actuarial center 
that specializes in that and in setting up criteria for 
qualification for long-term care insurance.
    By way of reference and a bit of context, I participated in 
the Senate Finance Committee hearings in 1982, when the 
decision was originally made to increase the retirement age for 
Social Security at age 67 staring in the year 2000.
    The position that I thought then and continue to think is 
conservative.
    The problem then, and what was very important in those 
hearings is that we lacked data on how health had changed as 
life expectancy increased.
    I think we now have a significant amount of data to reflect 
on those issues again, both in changing the retirement age and 
in looking at the health needs of the underlying population.
    In 1999, I participated in closed-door hearings with Nick 
Smith of Michigan on the potential for increasing life 
expectancy and active life expectancy.
    At that hearing was Dr. Haseltine, who now runs something 
like human genome sciences and the Social Security actuaries.
    Again, we were sort of blue-skying issues of how much life 
expectancy might increase and what would be the trailer effect 
on active life expectancy.
    The 1982 to 1999 Long-Term Care Survey provides me with the 
basis to demonstrate the soundness of the position I was 
promulgating in terms of looking at life expectancy, active 
life expectancy, and the proposition that the health care 
system in the United States may be the world's best, with the 
primary problem being the equity of distribution of health 
services across the population.
    If you look at that population or recognize its size (290 
million people) and the fact that there are some very 
disadvantaged groups, for 280 million of those people, their 
life expectancy might be greater than in Japan.
    To that point, I tried to provide some simulation analyses 
in the written testimony.
    Some of the recent important observations from the Long-
Term Care Survey are:
    There are large declines in chronic disability, 1.7 percent 
per annum, from 1982 to 1999, with declines accelerating, being 
fastest from 1994 to 1999, conservatively being 2.6 percent.
    Other people at our center, including our actuary, come up 
with a higher number like 3\1/2\ percent on a different basis.
    But the finding is robust--a decline and an acceleration of 
decline in the prevalence of chronic disability.
    More recently, because the Long-Term Care Survey is linked 
to Medicare expenditure data, we're able to look within 
disability categories and health categories, if you will, as to 
what's been happening to the inflation-adjusted per capital 
Medicare expenditures.
    This finding was interesting.
    In the growing non-disabled elderly population, per capital 
inflation-adjusted costs had declined from 1982 to 1999.
    In the most severely disabled category, from 1982 to 1999, 
calculated on the same basis, costs were increasing.
    So there's interaction between Medicare cost expenditures 
on a personal basis and the decline of disability.
    Larger numbers of non-disabled with lower costs than 
declining costs inflation-adjusted, higher costs for the 
smaller, severely disabled population.
    So, again, it's a question of targeting services to this 
very severely disabled group and providing preventative 
services--and by preventative, not just chronic diseases, but 
the promotion of functional capacity.
    We use the ADLs and IDLs, active daily living capacities 
and instrumental daily living capacities, because they involve 
not just physical activity, but a morale component or a 
psychological component.
    You can climb a stair with a little bit of pain. You can 
take Ibuprofen if you want to.
    So we use that as an indicator both of a combined physical 
and psychological profile of the health of the population.
    So in addition, probably one of the more controversial 
findings, but I think it's been pretty well established and 
I've talked with my colleagues about this basis, is that we 
found declines in the elderly institutional population in both 
relative and absolute terms.
    So, as a consequence, there have been examinations of the 
effects of trends of Medicare expenditures, and you see the 
declines with later ages. But reinforcing that may be the fact 
that institutional population size is going down. People are 
transferring from nursing homes to assisted living. Even the 
total size of the nursing home bed populations and assisted 
living and nursing home is declining.
    I can expand on those comments.
    Just to sort of conclude on three propositions to consider.
    The first proposition is Social Security and Medicare 
projections are based on overly pessimistic assumptions about 
the health and life expectancy of the U.S. population.
    We may have the highest life expectancy, at least for 95 to 
98 percent of the U.S. population.
    Number 2, the health of the U.S. elderly population is 
better than our national vital statistics system indicates.
    Active life expectancy estimates based on the 1982 to 1999 
National Long-Term Care Survey suggests that the United States 
may have the world's best health care system.
    The problem is equitable distribution of care.
    From 1982 to 1999, life expectancy increased for both males 
and females, 4.5 years. Active life expectancy increased about 
80 to 90 percent of that, about 3.8 to 3.9 years.
    So it's not just an expansion of life expectancy. There's a 
considerable increase in active life expectancy underpinning 
that.
    Then the final proposition--significant improvements in 
both the Social Security administration and Medicare trust 
funds could be realized if the healthy U.S. elderly population 
could be measured and projected correctly, and that the health 
care system is appropriately directed toward increasing human 
capital.
    That we take NIH research and we take Medicare and we focus 
it toward improving the functional capacity of the elderly 
population in the United States
    I think that concludes my comments.
    Chairman Bennett. Thank you very much.
    Mr. Lubitz.
    [The prepared statement of Dr. Manton appears in the 
Submissions for the Record on page 29.]

OPENING STATEMENT OF JAMES LUBITZ, M.P.H., ACTING CHIEF, AGING 
 AND CHRONIC DISEASES, STATISTICS BRANCH, CENTERS FOR DISEASE 
         CONTROL AND PREVENTION, HYATTSVILLE, MARYLAND

    Mr. Lubitz. Thank you, Mr. Chairman, and Mr. Stark. I'm 
pleased to be here.
    I'm going to discuss research on medical expenditure 
patterns from age 65 until death and some possible implications 
for the future.
    As background, our health care system has changed 
dramatically since Medicare's beginning. Health care spending 
has grown considerably, particularly for the elderly.
    Expectations for medical care have changed. In the 1970's, 
there was serious discussion of the idea that medical spending 
in the aggregate did little good and that we were wasting 
medical care on aggressive interventions for old sick people.
    Today, with numerous treatments to improve health, we have 
high expectations for medical care.
    There is new evidence that medical care is cost-effective 
in the aggregate and that the health of the elderly may be 
improving.
    The effect of improved health on health spending is a 
complex subject, but some believe that it will lower costs.
    Now I'm going to highlight some findings on the 
relationship of demographic factors to health care spending.
    First, I'd like to mention findings on cost of final years 
of life.
    Costs for persons in their last year of life are about 28 
percent of annual Medicare costs. This percentage has held 
steady despite all the changes in our health care delivery 
system.
    Another finding is that we find lower Medicare costs in the 
last year for older decedents as compared to younger ones.
    Now we also looked at Medicare costs from age 65 until 
death. We looked at the question of how much long-lived persons 
cost Medicare as compared to others.
    We find, and you can see on the chart in the Medicare line, 
that past age 70 or 75, each additional year adds little to 
Medicare costs from 65 to death. Whether an enrollee dies at 
age 80 or at age 90, Medicare will always pay the high final 
year costs and the added years covered are the healthy low-cost 
years far from the end of life.
    Now let's look at non-Medicare services.
    Although Medicare costs in the final years are lower for 
older decedents, this is not the case for non-covered services. 
Nursing home expenses in the last 2 years of life are much 
higher for older decedents and, in fact, exceed Medicare 
payments for decedents aged 90 and over.
    Concern about costs in the final year of life has often 
focused on expensive, high-tech care. But long-term care costs 
are more important for the oldest.
    The effect of longevity on total health care spending is 
different from the effect on just Medicare.
    That's the top line on the chart, which is at a 45-degree 
angle.
    Because long-term care costs accelerate with age, they 
offset the considerably lower Medicare costs in the final years 
for older decedents. Each added year lived adds the same amount 
to cumulative health care costs from age 65 to death.
    Again, that's the 45-degree line.
    Our Nation will experience a large growth in the number of 
the elderly and an increase in life expectancy. Our simulations 
show that the increase in the numbers of the elderly will have 
by far the largest effect on future spending, both Medicare and 
non-Medicare.
    Increased life expectancy beyond age 65 will have a small 
effect on Medicare and a modest effect on long-term care 
spending.
    Next, we simulated spending for persons reporting good 
health at age 70 versus those in poor health, and we found that 
healthy persons live longer, but had similar cumulative health 
care spending from age 70.
    That's total spending--Medicare and non-Medicare.
    Their lower yearly costs offset the effect of more years to 
accumulate costs.
    I'll finish with some implications.
    Life expectancy increases may result from healthier 
lifestyles, preventive services, or costly new medical 
advances. The future role of each is unclear.
    There is new evidence that our favorable health risk 
profile in middle age may result in both longer life and lower-
than-average Medicare costs.
    The costs of health promotion, of course, in the pre-
Medicare years are not borne by Medicare.
    Assuming that today's age-related patterns of frailty and 
cognitive loss persistent to the future, greater longevity will 
increase the need for long-term care, which is paid mostly by 
Medicaid and by patients and families.
    However, the compression of morbidity hypothesis posits 
that the amount of time spent in poor health will be less among 
tomorrow's elderly.
    In summary, it is difficult to predict the future health of 
the elderly and its relation to spending. We can simulate the 
effects of future scenarios, but cannot predict the future, 
except for the certainty of a large increase on the number of 
elderly.
    I'd be glad to answer any questions.
    Thank you.
    Chairman Bennett. Thank you, sir.
    Dr. Fries.
    [The prepared statement of Mr. Lubitz appears in the 
Submissions for the Record on page 53.]

    OPENING STATEMENT OF JAMES F. FRIES, M.D., PROFESSOR OF 
  MEDICINE, STANFORD UNIVERSITY SCHOOL OF MEDICINE, STANFORD, 
                           CALIFORNIA

    Dr. Fries. Senator Bennett, Representative Stark, ladies 
and gentlemen, it's a pleasure to be here.
    I'll give you some headlines in this brief presentation. 
The written testimony has more discussion of those points, and 
I'll be happy to respond and elaborate with them as we go.
    Health care costs have resumed double-digit annual 
increases and are in crisis.
    Existing control mechanisms, now and in the past, 
principally based upon rationing of supply, have failed to be 
effective.
    The illness burden of the nation, driven by the health 
problems of increasing numbers of seniors, is of mammoth 
amount.
    The ironic reality is that we already know how to improve 
health and at the same time, reduce medical care costs.
    Healthier people need less medical care. They place less 
burden on the demand side of the equation.
    We know how to postpone illness. It is done by prevention.
    Three false beliefs underlie our failure to systematically 
approach postponement of illness.
    First, ``the data are soft.'' False. There's far more 
evidence for the effectiveness of well-designed preventive 
approaches than for most of what we now call evidence-based 
medicine.
    Second, ``there is a long lag of 20 years or more before a 
change in the health risk behavior is likely to prevent a 
disease event such as a heart attack, and we have a crisis 
now.''
    The worksite version of this fallacy is ``I will just be 
making my employees healthier for their next employer.''
    False. Measurable reductions in costs and improvement in 
health and productivity, on the order of 10 to 20 percent, are 
achievable in the first 12 months of sound programs and 
continue to build thereafter.
    Third, ``people with good health habits live longer and 
will have greater medical care costs.'' Also false, as Dr. 
Lubitz has just told us.
    Longer-lived persons do not have increased cumulative 
lifetime or Medicare costs.
    I will make three major points and explore their policy 
implications briefly.
    First, the underlying theory behind health enhancement 
initiatives is the ``compression of morbidity.'' We have a 
chart showing the compression of morbidity in which three 
potential lives are diagrammed, from birth on the left to death 
on the right.
    The current morbidity and medical care costs in life are 
concentrated between the ages of, say, 56 and 76.
    The unhappy scenario would be the middle scenario in which 
there is an extension of longevity and an increase in the area 
represented by the shaded area, so that we have prolonged the 
period of dying.
    The third scenario is a world in which we emphasize the 
quality of life and the postponement of the onset of illness; 
morbidity is compressed, squeezed in-between a later point of 
onset and the age of death, which, while moving upwards, may be 
moving upwards more slowly than the amount of postponement 
which we achieve.
    Kenneth Manton has estimated that if mortality rates 
decline at 1 percent a year, which is their historic value, and 
disability rates decline at 2 percent a year, which is true of 
the Long-Term Health Care Survey, then morbidity is currently 
being compressed on a population basis in the United States.
    So, what was a controversial hypothesis of the compression 
of morbidity years ago is actually coming true, even though we 
have not systematically begun to approach and target the 
postponement of the onset of illness. This is a very different 
health improvement strategy than that which we have used.
    Second, the onset age of chronic infirmity potentially may 
be postponed by up to 12 years, certainly by 7 to 12 years, so 
that the amount of postponement by lifestyle change of the 
onset of infirmity is very substantial.
    Third, multiple large, randomized, controlled scientific 
trials have proved the effectiveness and cost effectiveness of 
sound preventive approaches to the postponement of illness.
    We have good science.
    The overarching objectives are to improve the national 
health and to decrease medical care expenditures.
    The facts, just briefly:
    We already know how to improve health and save money. It 
requires postponement of the onset of illness in the 
individual. And there are policy ways of targeting that.
    The compression of morbidity paradigm provides an 
underlying structure, and I covered those points.
    Also covered, the point that morbidity compression is 
currently occurring, that epidemiologic studies show potential 
disability, the postponement of 7 to 12 years, and that there 
are a lot of randomized and observational trials which support 
this data.
    Of interest, and neglected, in fact, is that there are 
effective health enhancement and cost-savings programs; there 
are a number that have now received the C. Edward Koop National 
Health Award, some 70 programs.
    Successful programs go beyond health promotion considered 
as simply risk reduction. They contain specific additional 
elements:
    (1) Improvements in personal self-efficacy and health 
confidence.
    (2) Improvement in self-management skills whereby patients 
take a greater role in determining the decision structure of 
what happens to them in the medical care system.
    (3) Programs directed at high-risk individuals.
    (4) Programs which are involved at persons who have chronic 
illnesses already, where the costs are present.
    (5) And finally, last year of life programs, where there 
are untapped approaches to improve the quality of life. And 
that area is suggested by Dr. Lubitz again.
    So there are a number of available approaches that are in 
the area of increasing autonomy of the individual, which 
include personal health decisionmaking and attitudes toward 
health and pursuing lifestyles, which are at least as important 
as and more immediate than are the effects that come from the 
stopping-smoking programs or the weight-reduction programs, 
more strictly risk reduction models.
    So it's more complicated than we have thought, and there 
are new opportunities, and that's actually good news.
    The policy initiatives need to focus on the big targets. 
With the WHO, we're now saying 3; 4; 50.
    Three risk factors--smoking, diet, obesity, lack of 
exercise.
    Four diseases--heart disease, cancer, diabetes, chronic 
lung disease.
    Cause fifty percent of illness.
    To effect changes, you need to hit the big targets.
    Craft careful, prudent, yet urgent approaches. This is a 
crisis. We need to do things now. Yet, we don't want to provide 
funding mechanisms for programs which are ineffective.
    We have to balance the need for proof with the need for 
progress.
    Multiple approaches--legislative, community work side, 
public education incentives, and others are needed.
    Tailored personalized population-based computer-assisted 
programs appear to be the best of presently available 
interventions.
    Keep these approaches strictly bipartisan. They are. 
Everyone is served, regardless of what one's opinions are about 
what changes need to be made in the health care system. If 
there's less disease, and a lesser need for services--everyone 
wins regardless of the side of the aisle on which they sit.
    Use this Committee in a major role to reconcile health and 
economic goals.
    We need a blessing on the economic argument side because if 
we can come with proposals which are strong and sound and which 
will improve health and save money, there is no reason not to 
widely implement such proposals.
    The problem is overcoming the skepticism. We're fortunately 
hearing here from people with a lot of stature in the area that 
the economic argument is a strong one.
    Granting that, then this Committee, sitting where it does, 
has the ability to influence a lot of things.
    Finally, some specific actions that are needed.
    (1) Support the Senior Risk Reduction Project, the SRRP 
demonstration, which will be a random sample of Medicare 
people. It just needs to get started. It's planned. It's ready 
to go.
    Hopefully, it will get going this year.
    (2) The HeLP bill, recently introduced as S. 2558, by 
Senator Harkin--it's an omnibus bill with a lot of very good 
features in it, as I know Senator Bennett is aware.
    (3) The Health Promotion FIRST Act is going to be 
introduced by Senator Lugar in the next week or so. It provides 
an improved health promotion scientific infrastructure.
    It will train better, more rigorous people and enlarge the 
field of developing and improving programs.
    (4) We need reimbursement initiatives for qualified 
prevention coverage. We need incentives of some kind for work 
site health promotion programs.
    The Harkin bill actually talks about some tax credits.
    (5) And we need, finally, rigorous external evaluation of 
these efforts. They have to proceed under a bright light. And 
they have to be observed by skeptics.
    We can improve health and reduce medical care costs 
substantially with currently proven approaches to postponement 
of morbidity.
    These approaches in turn can be refined and improved.
    Demand-side health improvement initiatives benefit the 
individual, the payer and the society. They do not encourage or 
require rationing. They are entirely bipartisan. They are not 
inconsistent with other cost containment initiatives.
    They have not been tried. They can work.
    Thank you.
    Chairman Bennett. Thank you very much.
    Dr. Feder.
    [The prepared statement of Dr. Fries appears in the 
Submissions for the Record on page 58.]

    OPENING STATEMENT OF STATEMENT OF JUDITH FEDER, Ph.D., 
   PROFESSOR AND DEAN OF PUBLIC POLICY INSTITUTE, GEORGETOWN 
                   UNIVERSITY, WASHINGTON, DC

    Dr. Feder. Thank you, Mr. Chairman. It's a pleasure to be 
here with you today.
    Mr. Stark, I appreciate the opportunity to participate with 
such esteemed experts on this topic.
    I'm going to shift our focus a little bit to the financing 
of care, particularly long-term care, and the implications of 
aging for that financing.
    We've heard from Dr. Manton about declines in the rates of 
disabilities. We've heard from Dr. Fries about the importance 
of improving health and prevention and making those declines 
come about. And we've heard from Mr. Lubitz about the impact of 
longevity, especially for very old people, on long-term care 
costs, creating higher long-term care costs, and of the 
overwhelming effect of growing numbers of elderly people on 
total costs and on long-term care costs.
    As I turn to financing and the implications of these 
factors for financing, my basic premise will be that even if 
the rate of disability declines--and we certainly hope that it 
does and I would support efforts to making that happen--future 
increases in the number of older people, especially very old 
people, will mean a greater need for long-term care.
    The population over age 85 is expected to double by the 
year 2030, and to quadruple by 2050.
    That means that the rate of disability would have to be 
half or a quarter of current rates to keep the number of people 
likely to need long-term care from growing.
    While such declines are by no means impossible and we 
should certainly seek to achieve them, our best bet is that we 
will need more resources to meet care needs in the future than 
we are investing today. Especially since we're really not 
meeting those needs very well right now.
    Let me elaborate on the inadequacies of current financing 
policy and the implications for the future.
    As Mr. Stark indicated, the need for long-term care is an 
unpredictable and potentially financially catastrophic event, 
best dealt with through insurance.
    For the almost 40 percent of the long-term care population 
who are under the age of 65, the need for long-term care is 
clearly unpredictable.
    Though the probability of needing long-term care increases 
with age, even among the elderly the need and the extent of 
need varies considerably.
    Thirty percent of people retiring today are estimated as 
likely to need no long-term care before they die, while at the 
other extreme, 20 percent are estimated to need care for 5 
years or more.
    For those who need extensive care, costs exceed most 
families' ability to pay--today, more than $50,000 a year for 
nursing home care and about $26,000 a year for regular home 
care.
    But we lack private or public insurance to protect against 
the unpredictable financial catastrophe that long-term care 
represents.
    Though sales of private long-term care insurance are 
growing, its inadequacies as a solution to our broad needs 
should be obvious from our experience with the exclusions, 
benefit limitations, and marketing costs of health insurance 
marketed to individuals. What doesn't work for health care will 
work even worse for long-term care.
    Public insurance is also lacking. Medicare covers very 
little long-term care, and Medicaid, which provides invaluable 
resources and services for long-term care and is the nation's 
long-term care safety net, does not protect people against 
financial catastrophe. It finances services only with 
impoverishment--that is, after catastrophe strikes.
    Medicaid's adequacy is further weakened by its emphasis on 
nursing home care rather than care at home, the considerable 
variation in the benefits and eligibility across states, and 
the vulnerability of its benefits to limited state revenue 
capacity and other pressing state needs--education high among 
them.
    Overall, despite substantial Medicaid and out-of-pocket 
spending on long-term care, and extraordinary efforts by 
families who provide most of the long-term care people receive 
at home, one in five elderly people outside nursing homes 
report unmet need, frequently resulting in serious consequences 
like falling, soiling themselves, or inability to bathe or to 
eat.
    Without a change in policy, unmet need will likely 
increase. An aging population will put growing pressure on all 
state Medicaid programs. But states with the greatest increase 
in their older, relative to their younger, working age 
citizens, like Colorado, Utah, and Oregon, will face the 
greatest pressure.
    Since many of the states with the greatest change are 
today's lowest spenders per worker on Medicaid term care, long-
term care financing will likely be even less equitable and 
adequate in the future than it is today.
    What should we do about it?
    We really have a choice--whether we want to live in a 
society in which we assure access to affordable quality care 
for people who need it, or in a society in which we leave 
people in need to manage as best they can on their own.
    I hope that we opt for the first.
    To address both current and future care needs requires a 
commitment of public resources. And to be adequate and 
effective in all states, it is Federal resources, consistent 
with the Governors' frequent request that the Federal 
Government assume fuller financial responsibility for those 
people who are eligible for both Medicare and for Medicaid.
    Expansion of public financing for long-term care could take 
a variety of forms. And if public benefits are limited or 
targeted, we can protect people against impoverishment and 
still leave plenty of room for cost sharing or private 
insurance supplementation by the better off.
    Indeed, the OECD reports an increase in the number of 
nations around the world adopting universal public protection 
with what they call a fairer balance between public and private 
financing, one that relates personal contributions to ability 
to pay and one that targets the greatest benefits to the 
population in greatest need. Many of these nations have 
substantially larger proportions of elderly today than does the 
United States, and therefore, can be instructive to us as we 
adjust to an aging society.
    Clearly, we will face choices in that adjustment. If we are 
to be the caring society, I believe we wish ourselves to be, we 
too will move in the direction of greater risk-sharing and 
equity by adopting a national policy and committing the Federal 
fiscal resources which will be necessary to achieve that end.
    Thank you.
    [The prepared statement of Dr. Feder appears in the 
Submissions for the Record on page 79.]
    Chairman Bennett. Thank you very much, all of you. You've 
demonstrated how complex and yeasty this particular issue is. 
There are a number of subtexts now running around here that I 
hope we can get into.
    As Mr. Stark knows, my style is to try to generate more of 
a roundtable sort of conversation than the traditional 
questioning/answering from the dais to the witness.
    That having been said, I am going to ask some questions and 
I'm sure that Mr. Stark is too, before we get into that.
    But I would hope later on, we can be at a point where 
people feel free to speak up and interact back and forth.
    Let me see if I understand some of the points that have 
been made.
    Dr. Manton, I'm interested. We always talk about life 
expectancy in a total population. And we always use a single 
term. I know the life expectancy in Japan. I know the life 
expectancy in Russia and so on.
    I should have been smart enough to realize that life 
expectancy varies from group to group. I'm interested in your 
concept that if you take out a certain portion, which you 
describe as the disabled, among the non-disabled, our life 
expectancy goes up----
    Dr. Manton. May be the world's best.
    Chairman Bennett. May be the world's best.
    Dr. Manton. For 95 percent of the U.S. population.
    Chairman Bennett. Ninety-five percent.
    Dr. Manton. More than any other country. Japan has 127 
million. Their male-female combined life expectancy is 81 
years.
    I did some simple simulation studies, back-of-the-envelope 
type of things, and if you simply take Hispanic workers, 
migrant workers, undocumented aliens, and you take the estimate 
that the census missed 7 to 14 million of them, if you take the 
upper bound of 14 million and you take what's in the 
literature, a life expectancy of 49 years, which is less than 
many developing countries, that can change life expectancy in 
the United States because it's a younger population, highly 
focused, with very low life expectancy.
    It can change life expectancy at birth in the United States 
by 1.1 year.
    Chairman Bennett. That raises a whole series of analytical 
questions that I think have to be factored into the overall 
equation.
    Dr. Manton. Well, one of the interesting things is that if 
you even compare NCH's life tables to the Social Security 
actuaries' life tables, they're off by half a year. They 
differ.
    Same vital statistics data, two different agencies.
    NCH's is a little higher and it's probably a better 
estimate. The Social Security actuaries--it must be some 
actuarial assumption, some sort of smoothing assumption or some 
ultimate change assumption.
    But it's like 0.5 to 0.6 years and guess what? It's the 
same at age 90 as it is at birth.
    Artificial.
    Chairman Bennett. Mr. Lubitz, let me see if I understand 
exactly what you're saying.
    If you have a healthy lifestyle and you live longer, the 
cost in total life terms remains the same, but the cost per 
year will go down because you have more years.
    Mr. Lubitz. That's it exactly. Our findings concern cost 
from age 70 until death. That was our finding exactly.
    Chairman Bennett. That's a standard mathematical model that 
fits. But it has implications because if we're in the territory 
that Dr. Feder is talking about and we're looking at Medicare 
costs per year, if the cost per individual for his lifetime 
remains the same but it's spread over, let us say, 10 years 
instead of 5, the cost per individual in the Medicare program 
is going to go down, in the overall.
    Dr. Manton is with me mathematically on this.
    Dr. Manton. Right. The per-capita, per-year cost is going 
down.
    So each year under the Medicare experience, per individual 
is declining.
    Chairman Bennett. Per capita per year. Now, the capita is 
going up.
    Dr. Feder. Exactly.
    Chairman Bennett. The capita is going up. So let's not be 
overly excited about this.
    But it's nonetheless a good thing.
    Dr. Manton. Right.
    Mr. Lubitz. If what you're saying, Mr. Chairman, is that if 
we increase the proportion of the elderly and middle-aged who 
are in good health, it looks like your conclusion is correct, 
yes.
    Chairman Bennett. There's a pay-off. There's a pay-off at 
the other end.
    Dr. Fries, you seem to reinforce both of these conclusions 
that say, therefore, there's an area of examination that we 
need to do in terms of making our long-term forecast of what 
our costs are going to be, and that there's a strong potential 
that the costs will not be as high as the straight-line 
extrapolation might indicate today.
    Dr. Fries. That's right. But there's a harmonic all the way 
across this panel because it is driven not by increases in 
senior life expectancy, which will be modest, from age 65 or 
from age 85.
    From age 85, the change in the United States has been only 
fractions of a year over the last 20 years.
    What drives the equation is what Dr. Feder was saying, the 
number of people in the cohorts that are rolling toward us at 
this period of time.
    We can't change that number.
    Dr. Feder. Hopefully.
    Dr. Fries. It's driven by the number of people born 85 
years ago, and there are more of them every year. And they're 
coming along.
    So that number we're stuck with and we can predict it 
pretty accurately.
    Chairman Bennett. Yes.
    Dr. Fries. There is another pusher, which is that more of 
them get to 65, a larger percentage of each birth cohort 
actually makes it to 65 or makes it to 85.
    So that also is a pusher. We can estimate that pretty 
cleanly.
    So there are more people coming. It is probable that we'd 
have to be really good at postponing illness to make up as much 
on the individual basis, which is the only place that we can 
make it up.
    Dr. Manton. Better educated.
    Dr. Fries. These other numbers are set.
    Dr. Manton. They're better educated. That's another 
dynamic.
    Dr. Fries. Yes.
    Dr. Manton. Access to health care and the ability to follow 
physicians' orders.
    Dr. Fries. We've been looking--and I've written on the 
Long-Term Care Survey Data and what the implications are and 
why are we compressing morbidity because it's clear that we 
haven't gotten into the postponement of illness scenario yet.
    Chairman Bennett. Yes.
    Dr. Manton. Medical care has played a lot of roles. Some of 
the better treatment of hypertension, for example, better 
treatment of cholesterol levels and things that have happened 
over this last period of time. More total joint replacements.
    Some of these advances that have compressed morbidity are 
on the medical side.
    The future, if we do it right, and if you had the chart 
that I had, you kind of contrasted the scenarios.
    If you want to extend the longevity line, then you can 
think about heart transplants and extreme technology employed 
at the late portion of life, and it drives that whole shaded 
area out. It costs a lot of money.
    If you want to drive the first one by prevention, you 
clearly have to get in there before it happens.
    Chairman Bennett. This is the point I want to make, and 
then I'll turn it over to Mr. Stark.
    Dr. Feder makes the clear point that these people are 
coming.
    Dr. Feder. I'm a baby boomer myself. And we think it's a 
good thing that we're coming.
    Chairman Bennett. Yes. Mr. Stark and I both think it's a 
good thing that longevity goes up.
    [Laughter.]
    But there's an implication in all of this which I'm not 
sure we can quantify, although Dr. Manton has tried to.
    That various strata in our society have very different 
tracks ahead of them. I can't put my finger on it, but it just 
stuck out of my memory.
    If you're African-American and you have not graduated from 
high school, and you do not have a stable family situation from 
which you have come, this is a health disaster statistically.
    You're much more likely to die younger. You're much more 
likely to be a smoker.
    We talk about increasing the price of cigarettes in order 
to discourage people from smoking. We've had some push back--
yes, but this is a very regressive tax.
    If the tax on cigarettes goes up, it's the people at the 
lower economic level who are paying the tax because they're the 
ones who tend to smoke because the education, the family 
tradition, the peer pressure, whatever, is not there for them 
to stop smoking.
    So an increase in tobacco prices, increase in cigarettes, 
is a regressive tax on the poor.
    I'm sure you've heard that on the House side, too, that 
we've heard on the Senate.
    It doesn't convince me not to raise the price of 
cigarettes, but it's an interesting analysis tool. Dr. Feder, 
maybe you and Dr. Manton can get together and look at which 
portions, which sectors of the economy are most likely to be 
the most expensive.
    It may not be completely random in terms of health care. 
You say for the 16-year-old who is driving his motorcycle 
without a helmet, that's random. But the older you get, it 
becomes more predictable in terms of the socio-economic pattern 
that people are following coming into those later cohorts, as 
well as lifestyles.
    Because I think we ought to be looking in terms of where 
the pressures are building and whether or not interventions 
that we don't normally think of as health interventions, 
educational interventions and others, can change lifestyle.
    Isn't it true that if you are at the higher economic scale, 
you are far more likely to be physically fit?
    Dr. Feder. If people have better incomes, they are more 
likely to be in better health. You're absolutely right--those 
strategies are important, along with education and improving 
health and people's quality of life.
    But I wouldn't want you to think that you then can 
eliminate this variable risk of care needs.
    We're all going to get something.
    Chairman Bennett. No, I don't think anybody would suggest 
that it can be eliminated.
    But it can be ameliorated.
    Dr. Feder. We can reduce the risk. But then there still is 
an unpredictable factor.
    I know that you did not mean to characterize all the 
younger people with disabilities as motorcycle accidents.
    Chairman Bennett. No, no, no.
    Dr. Feder. It's just important that we recognize that there 
are birth defects.
    Chairman Bennett. Yes.
    Dr. Feder. There are health conditions, many things. The 
fact that 40 percent of the people who need long-term care are 
under the age of 65 is something people sometimes forget when 
we focus so heavily on the growing elderly population.
    Chairman Bennett. I'll turn it over to Mr. Stark now. I've 
gone too long and have intruded on his time.
    Representative Stark. Thank you, Mr. Chairman.
    Is there agreement among the witnesses and generally among 
people who do research in this area as to the accuracy and 
transparency of the data base?
    Do you have all the basic data that you need so that it's 
just a question of how you interpret it? Or are there 
differences in the basic data that cause some differences in 
prediction?
    Dr. Fries. I'll try. Probably everybody would like to 
comment a little bit on this.
    In 1980, that period of time we had almost no data on 
quality of life, on morbidity, on disability, on a national 
sample basis.
    So we have improved that data a great deal.
    We still don't measure it very well.
    Dr. Manton. On expenditures.
    Dr. Fries. We'd find even better results I think if we had 
better measures of disability, if we used more quantitative 
measures as opposed to on/off measure--you are disabled, you 
aren't disabled.
    We have ways of doing that. They haven't really crept into 
the surveys yet.
    So there is a need for more and more data. The need for the 
data is particularly on the morbidity side, not the mortality 
side, which we count a lot better.
    Dr. Manton. I've had a lot of experience in terms of 
dealing with the data sets. When we did the 1982 to 1989--1982, 
1984, 1989, there's a National Academy of Science panel that 
looked at it and said, ``Well, it's potentially credible.'' The 
data is OK. But let's have one more round of data to make sure 
that there's a trend.
    So we did 1994. And the rates went up a little higher. The 
rate of improvement went up a little higher.
    So at that point, there was a dilemma--hmmm, maybe we'll 
have to accept this.
    In 1999, they accelerated again. In 1999, the institutional 
population experienced an absolute drop.
    Now what I'm trying to say there is you need targeted 
services to the people that need it, better services for a 
smaller portion of the population with the highest needs.
    But a simple analysis of the institutional population, the 
Census Bureau estimated in 1999 that there's going to be 1.74 
million people in nursing home beds. We counted 1.46 million.
    That was controversial until the 2000 census came out, 
which came out at 1.52 million, and other data sets like the 
National Nursing Home Survey----
    Representative Stark. Well, when you counted 1.52 or 1.46 
million, did anybody dispute your count? There may be disputes 
about how you interpret what that is, but what I'm trying to 
get at is, when you all are counting people with heart attacks 
in a certain age group, do you all pretty much come up with the 
same numbers?
    Are we working exactly----
    Dr. Manton. So far, talking to the individuals and other 
researchers involved like Brenda Stillman, if we talk and get 
our definitions straight, the numbers are pretty robust.
    Representative Stark. OK.
    Dr. Fries. There were 16 different trials that were used in 
a meta-analysis by Freedman and Martin and every single one of 
them showed--not as well documented as Ken's data, but showed 
the same thing.
    Dr. Feder. Mr. Stark.
    Representative Stark. Yes.
    Dr. Feder. My colleagues may know better than I, but I 
think there are some issues in counting people with functional 
impairments. They are partly definitional issues. They are 
partly finding the people.
    So I think that that's an area where I believe we would all 
agree more work is needed.
    Representative Stark. OK.
    Mr. Lubitz.
    Mr. Lubitz. I wanted to mention, if I may.
    Representative Stark. Please.
    Mr. Lubitz. Three areas where I think that we need to 
improve our data on the elderly especially.
    One is in getting good national regular estimates of 
cognitive status--Alzheimer's. I'm not aware that we have 
consistent yearly, good reported data.
    We need to get a better handle on our population in 
assisted living facilities and facilities that can be 
alternatives to either home care or nursing home care.
    Dr. Feder. Exactly.
    Mr. Lubitz. And that really bears on how we evaluate the 
health of the elderly.
    The other area is I don't think we have good national 
regular data on the mental health or mental illness in our 
population, including the elderly population.
    Representative Stark. Good point.
    Mr. Lubitz. And a methodological issue.
    Representative Stark. And that would impact mightily, it 
seems to me, both the dementia and the mental health issues.
    Mr. Lubitz. Well, especially Alzheimer's.
    Dr. Manton. Alzheimer's is a major problem. It gets over-
counted.
    There was a GAO study in 1998 that came up with an 
estimate, one quarter the size of the estimate from NIA, and 
our numbers were consistent with GAO, not with the NIA 
estimates, which was based on one study, in 1980, and 
extrapolated forward, multiplied times census numbers.
    We have a time series over 20 years. Our numbers are 
consistent with the European experience and are consistent with 
the GAO method analyses.
    1.1 million severely cognitively impaired.
    Representative Stark. Well, it just occurs to me, Mr. 
Chairman, that whatever we could do to see that we get a group 
of witnesses like this so that we're all using the same data, 
that's something that I'm sure we could begin to have some 
impact on now, both its availability and to the extent that we 
can standardize it.
    So that argument gets off the table and we can get down to 
suggesting now, how do you want to take that data?
    Mr. Lubitz, I was surprised by the flat curve that you have 
for Medicare after about age 73, which I am surprised.
    I'm also surprised that there hasn't been--and I don't know 
from whence, what period this data comes, that the 
pharmaceutical benefit--if you matched it logarithmically with 
Medicare, does it follow the same pattern as Medicare, the 
pharmaceutical part?
    Mr. Lubitz. I really can't answer that.
    Representative Stark. OK. Are the veterans programs in your 
data?
    Mr. Lubitz. That's a very good question. My answer, I 
believe, no.
    No, they are not.
    Representative Stark. I don't know how they might impact.
    Dr. Manton. We in the Long-Term Care Survey, Eric Stallard 
have been linking in veterans programs, benefits, and long-term 
care.
    For the 2004 round, we have proposed, but not funded, the 
study of the Medicare drug benefit with a follow-on component 
of the core survey.
    Then also one thing with the survey--it's actually not my 
fault or responsibility, but when it was designed in 1980, it 
was meant to match up any definition of disability and 
functioning that was in demonstration studies being done by the 
government.
    So you can look at unmet needs. You can look at different 
definitions of disability.
    You can change the definitions, but the data is there in 
order to get a temporal measure and consistently done over the 
20-year period.
    Then costs we linked to the Medicare files.
    Dr. Fries. From the clinical side, a lot of the data that 
you've had presented here are consistent with gerontologic 
teaching right now which is as you have older patients, you 
have fewer moveable, modifiable results and illnesses, and that 
at the same time, medications taken are less effective because 
there is less organ reserve.
    So the counseling is lower, slower, and more conservative. 
Perhaps defer the total joint replacement or other procedures.
    So you have a well thought-through and well taught approach 
toward just a general decrease in the aggression of medical 
care for the individual very elderly patient.
    Representative Stark. Let me end my part here and toss out 
a factoid whose accuracy I won't argue about. But I think in 
terms of its approximation, it's not very far off.
    That is--and you can do this with several countries. But 
the one that hit me, only because I spent a pleasant week in 
Costa Rica. But that the average cost per capital for medical 
care in Costa Rica is--I'm going to say $500.
    The average cost in the United States I'm going to say is, 
let's say around $4000.
    Whomever I heard this from, I'm pretty sure that those 
numbers are in proportion. It says that a child born in Costa 
Rica today has the same life expectancy as a child born in the 
United States today.
    Explain that to me.
    Mr. Lubitz. Maybe I can start.
    Representative Stark. OK.
    Mr. Lubitz. I have a little bit of a family insight because 
my wife is Costa Rican.
    [Laughter.]
    I've thought about your question. And my answer, which is 
not based on science but just on many, many trips there, is two 
things.
    One, they have a good, lean diet.
    Two is they don't have as many automobiles per capita. It's 
growing now, but they do a lot of walking every day.
    Representative Stark. I can understand why. They don't have 
any roads.
    Mr. Lubitz. Right.
    [Laughter.]
    They take public transportation. They do a lot of walking.
    Third is their medical care system, while certainly not as 
technically advanced as ours, is pretty decent and their 
national medical school is based on the American model.
    Representative Stark. Is it universal?
    Mr. Lubitz. It's very good. They do have universal 
coverage, although the people complain about long waits, et 
cetera.
    Dr. Fries. I think the strongest point, just to build on 
that, the strongest point of these international comparisons 
are that we are clearly not getting very good value at the 
margin for the way in which we're currently spending money on 
health care.
    If it was, and you're correct that we spend 10 times as 
much as really impoverished----
    Dr. Manton. Relative to the average income, though, is the 
question.
    Dr. Fries. Well----
    Dr. Manton. Adjust out for the base income levels.
    Dr. Fries. There's so much that's fixed costs because 
machines cost the same even in developing countries as in 
developed ones.
    So, the fact that we don't see that we in the United States 
live 10 years longer or have 10 years' greater health than 
other developed nations is a cogent one.
    But when you make the international comparisons, you see 
that wise resource use and encouragement of that, emulating 
some of those low-tech measures, can help us get some health 
production that we presently neglect until it gets to be very 
expensive.
    Representative Stark. Dr. Manton's comment I did hear, is 
that there's a difference in income. So I'll ask the staff--
they're going to be mad at you. But I'm going to ask them to 
adjust that factoid for me.
    Dr. Manton. Because United States is about $35,000. What's 
it in Costa Rica?
    Mr. Lubitz. I don't know.
    Dr. Manton. A tenth, and then we're at $5,000. The relative 
expenditure is greater proportion.
    Representative Stark. OK. I'll look at that.
    Judy.
    Dr. Feder. Mr. Stark, just to make a slightly different 
point. I think that Jim mentioned it at the beginning of his 
remarks.
    There is analysis that says that we are getting more value 
from the dollar in our health spending than we have typically 
thought we are that the investment is producing benefits in 
terms of quality-adjusted life-years.
    So, one wants to look at that carefully.
    That is not to say that we couldn't get that value by 
spending less, that we could use our dollars more wisely.
    So I don't think we have to believe that we are wasting 
money in terms of our investment in improved medical care.
    As a user of many new medications, I think we ought to 
recognize that value.
    But we don't want to spend more than we have to, and I 
think that there is widespread agreement that we may be doing 
that.
    Representative Stark. Thank you.
    Dr. Manton. One comment just on the expenditures. Again, 
you have to be careful about the base.
    But there's a small table in my written testimony where you 
compare personal expenditures like 13.9 percent or 14 percent 
you figure in the United States of the economy is devoted to 
health care.
    But when you look at a proportion of government 
expenditures, the Japanese and the Swedish are very close to 
the United States, within 1 percent, 16\1/2\ versus 17\1/2\ 
percent.
    The point being what's happening in the United States is 
more private investment and maybe the U.S. citizen is thinking 
more about his health and investing more out of his pocket into 
the system and into their health care.
    Chairman Bennett. Do expenses for private trainers for 
Hollywood stars count as health care expenditures?
    [Laughter.]
    Dr. Manton. Probably not yet, but they probably should.
    Chairman Bennett. Yes.
    Dr. Manton. They can help a lot. Especially if you've got 
flexibility problems.
    [Laughter.]
    Chairman Bennett. I won't go any farther than that. But 
you're right, that people at the upper end of the economic 
scale do spend a lot of money in ways that may or may not be 
really productive in terms of better health.
    Dr. Manton, Mr. Lubitz has projected that the expenses of 
long-term care will essentially wipe out the savings in 
Medicare spending as people live longer.
    Now, he seems to assume that the current projections of the 
need for long-term care and its costs will remain the same.
    Is that a reasonable assumption from your point of view?
    Dr. Manton. I don't think so. When we did calculations, 
taking the 1982 risks of institutionalization or disability and 
go forward, if we hadn't had the improvements, we estimated 
about $26 billion per year more expenditures in Medicare and of 
about $5 billion a year more expenditures in Medicaid. And we 
can break that down in a lot of different ways.
    The rate of institutionalization and even the absolute 
count of the institutional population has declined, and it 
could go down a lot further, from 1.74 in 1994 to 1.46 million, 
which is an absolute decline.
    But, really, that's 1.2 million nursing home beds in 
nursing homes. About a quarter-million are in assisted living.
    If you look at assisted living, 800,000 or 900,000 people, 
only about a quarter of those people need nursing home beds.
    I've talked to geriatrician and gerontologists who say that 
the same thing could be done to nursing homes, that you could 
reduce the population by 60 to 70 percent from the 1.2 million.
    So there are a lot of improvements still to squeeze out.
    Chairman Bennett. How do you reduce the population in 
nursing homes again by 60 percent?
    That gets our attention all the way across.
    Dr. Manton. OK. Look at the assisted living population. 
That's where you have graded care. That's where you can move 
back and forth with rehabilitation, into a nursing home bed and 
out of a nursing home bed.
    So that's the very elderly population who's moved out of 
their home or an apartment into a place where there are nursing 
home beds available. And you have spousal care usually 
available.
    What is the rate of utilization in nursing home beds in an 
assisted-living facility? It's about 25 percent.
    So I've asked people. I said, in the average nursing home 
population, true nursing home, classical nursing home, 
especially with giving the pressure toward rehabilitation post-
acute care since the 1988 MCCA--Medicare Catastrophic Care 
Act--that you could probably do the same with classical nursing 
home beds.
    Dr. Feder. Mr. Chairman.
    Chairman Bennett. Yes.
    Dr. Feder. I didn't mean to interrupt you, Ken.
    Dr. Manton. Yes.
    Dr. Feder. This is an area where I think there is some 
dispute in the analysis.
    Going back to the decline in the nursing home population, I 
think that researchers have raised questions about whether we 
really know what's happened to those people--the ones that 
aren't in nursing homes. Are they in assisted living 
facilities? Are they getting adequate home care?
    It's not at all clear.
    My understanding of the data on who is in assisted living 
is that that population tends to look quite different from the 
nursing home population. Although there are individuals who 
could move from one to the other, to think of a wholesale 
movement to a less costly level of care is probably unlikely; 
particularly since the kinds of people using nursing homes are 
increasingly disabled, so that they really need the kind of 
intensive care that they're getting in nursing homes.
    So finally, I guess the other piece is, and that was meant 
to be the thrust certainly of my oral presentation, we have to 
look at all of this against, to put it simply, what a lousy job 
we're doing in taking care of people today.
    Home care is barely available for people who need long-term 
care. They may not be in nursing homes, but they may be at home 
putting enormous burdens on family care-givers, or going with 
unmet need, as I indicated earlier.
    As your question indicated, to think that we could make 
enormous differences or make enormous cuts in what we're 
currently spending, which I don't think we've meant to imply, 
would be unlikely, would be wrong.
    Chairman Bennett. Yes.
    Dr. Fries. There are a lot of nuances here and we need to 
move toward dynamic models and away from static models because 
that's where you add and subtract here.
    If you just imagine a situation in which two spouses are 
both vigorous in their middle 80's and living together, their 
opportunity to live independently is greatly enhanced compared 
with the traditional widow living alone without a family 
support system.
    So there are some things which I would argue can be 
encouraged that are good for the pocketbook and they're also 
very good for the people who are living and growing older at 
the same time.
    So I think we need to look for sort of natural trends which 
may in a nuanced way come in.
    The other thing that I keep talking about in dynamic 
modeling, and Ken and I have talked over the years about 
dynamic modeling of compression of morbidity, it doesn't have 
to happen.
    You can do a ``Russian approach'' on health and have 
everything get worse over time.
    We've had pretty steady progress. But that doesn't have to 
happen. If we don't work to postpone illness through good 
health policy across the society, then we'll have more illness 
than if we do work to postpone illness.
    So we haven't done that yet. A lot of what we're going to 
see in the results when we look back 10 and 15 years from now 
is how we executed with response to now understanding the 
problem and some of the solutions to the problem better.
    We need to work on that now.
    Chairman Bennett. Yes, Mr. Lubitz?
    Mr. Lubitz. Yes. I wanted to mention some points for 
caution about projecting to the future and these optimistic 
things that we hope for.
    One is that there is some scientific debate about the 
extent to which the disability drops among the elderly are due 
to fundamentally better health, or to use of equipment.
    One of our colleagues, Brenda Stillman, has a recent paper 
raising this question.
    Dr. Manton. I've talked to her recently about that paper.
    I have a comment.
    [Laughter.]
    Mr. Lubitz. The other thing is that I wanted to just 
mention two things, one that is happening today and one that 
began to happen in the 1950's, which were big fundamental 
changes in the health of our population that nobody predicted, 
and it's a lesson to us that it is very hard to predict the 
future.
    The first thing that began to happen in the 1950's was a 
dramatic drop in the death rate from cardio-vascular diseases.
    I don't think people predicted it and people are still 
trying to understand the reasons behind it.
    The other thing that nobody predicted that's happening 
today is the obesity epidemic. It's been going on for two 
decades, but in the 1970's, I never read anything that people 
said that such an epidemic was coming.
    So we are going to have soon, the first--I mean, in a 
number of years, the first decade of people, the first large 
group of people who have been fat since age 35 entering on to 
Medicare.
    I don't know what it will mean.
    Dr. Manton. The biggest problem----
    Chairman Bennett. It can't be good.
    Dr. Manton. The biggest problem with obesity at later ages, 
or nutrition--now Jim can talk about this--if you go into a 
nursing home population, you don't see a lot of fat people.
    They may have poor body composition and relative to the 
lean body mass, they may have a lot of fat. But the problem in 
a nursing home is not obesity and being over fat. It's cellular 
hydration, dehydration, and the nutrition is not terribly good.
    There's a study by Fiatroni in 1994 in the New England 
Journal of Medicine where they looked at the effects of weight 
training on people to regenerate function. For a lot of studies 
it didn't work. But Fiatroni said, ``Hey, maybe if they're 
working harder, maybe they need a little more food.''
    When you put nutrition together with exercise, they got up 
out of chairs, they started walking, and the population was 
mean age 87.
    So one of the problems that we've had with our survey as 
we've gone on in time is the size of the disabled population is 
getting so small, to get accurate estimates, we're having to 
look at higher level functions over time and to look at greater 
psychological mental functioning as well as physical 
functioning.
    One additional point that I would sort of say, and I can 
talk a lot about Brenda Stillman's stuff when we talked over 
the phone to get this issue resolved, and there was a problem 
using the Census Bureau independent population estimates and we 
can go into great detail in that.
    But one point of many that I didn't put in my written 
testimony was simply one that was the rate of improvement for 
people at specific ages in terms of disability against age.
    That's a straight 45-degree line up there. What that means 
is 95-year-olds are increasing relatively a lot faster in terms 
of functional improvement than 70-year-olds are.
    Chairman Bennett. The Senate has called a vote and I think 
we've probably come to a logical stopping place. So I will 
adjourn the hearing.
    But I cannot resist sharing an anecdote out of my own 
family that I think illustrates what we've been talking about 
here.
    My Uncle Harold was a very active squash player all his 
life. Squashball, racquetball, and so on.
    Wherever he went on business trips, he would always put a 
3x5 card on the bulletin board to say, ``I'm in the hotel. If 
somebody wants a squash game, I'm available.''
    On one occasion, he was in Las Vegas and staying at a 
private club rather than a casino-type hotel, put the 3x5 card 
up, and got a phone call.
    Went down to the game with the fellow who answered his 
request. And when it was over, Uncle Harold had won the game.
    The young man who was his opponent, as they were showering 
and dressing after the game, said, ``Mr. Bennett, I just want 
to say something.'' He said, ``When you walked in here, I was 
very disappointed at the idea that I was going to play a 65-
year-old man, and that this wouldn't be much of a game for 
me.''
    He said, ``Obviously, I misjudged and you are in wonderful 
shape and a wonderful squash player at your age.''
    Uncle Harold said, ``Thank you very much. I appreciate 
that. By the way, I'm 75.''
    [Laughter.]
    Uncle Harold died at 99, after a 48-hour illness. He was 
living alone in the house that he and his wife had raised eight 
children.
    He said he was never going to move because he didn't want 
to clean out the attic.
    [Laughter.]
    He drove a Jaguar in the last week of his life. He refused 
to let us make a big deal out of his 99th birthday because he 
says, 99 is not that big a deal. Let's wait until I'm 100.
    He didn't make it to 100. But in terms of the morbidity 
compression, in his case it was less than a week. I think the 
squash playing probably had a lot to do with it.
    If we could get every Medicare recipient to be in that 
circumstance, although I must further say, I think genetics had 
something to do with it.
    My Uncle Harold died at 99. My father didn't make it. He 
died at 95 and my mother at 96. I'm reminding the voters of 
those two ages when they think I may be too old for another 
term in the Senate.
    [Laughter.]
    With that, the Committee is adjourned.
    [Whereupon, at 11:20 a.m., the hearing was adjourned.]

                       Submissions for the Record

=======================================================================

      Prepared Statement of Senator Robert F. Bennett, Chairman, 
                        Joint Economic Committee

    Good morning and welcome to our hearing on the changing 
demographics of health care. Today we will examine long-term trends in 
the health status and health spending levels of elderly Americans.
    The two most obvious trends are that we are living longer and 
spending more on health care. But the connection between those two 
trends is complex, and we need to understand it better. Some might 
worry that we are caught on a fiscal treadmill, in which long life 
spans beyond age 65 will simply add to the mounting financial burden of 
our commitments to fund public entitlement programs like Medicare, 
Medicaid, and Social Security. But that view focuses too narrowly on 
the sheer duration of life and the potential costs associated with it, 
without examining the quality and value of extra years of life.
    Even though we hear complaints about our health care system and are 
concerned about various indications of unhealthy habits and practices, 
there is a growing body of evidence that suggests Americans are not 
just living longer, they are also living in better health overall.
    Today's hearing will first take a look at what we know about a 
possible decline in chronic disability rates among the elderly and what 
this trend implies for the future. Then we will explore whether it is 
possible to delay the onset of serious illnesses while extending active 
life spans, particularly through effective health promotion and disease 
prevention strategies. We will examine how by changing the underlying 
demand for health care services, instead of just trying to control the 
supply of health care, we could affect the future structure and 
financing of our public health programs. Finally, we will discuss 
whether a longer lifespan, combined with better health can maintain and 
enhance the vital treasure of human capital that we need to maintain a 
vigorous labor force and strong economic growth in an aging society.
    Of course, before we paint too rosy a picture of the future, we 
should carefully assess where we have been and where we are now. Today, 
we have a panel filled with some of the nation's leading experts in the 
field of health care demographics. We hope that they will not only 
highlight and interpret the data for us, but that they will also offer 
some suggestions about how we could harness the full potential of our 
current investments in health care and health promotion.
    Dr. Kenneth Manton of the Center for Demographic Studies at Duke 
University is noted for his work with the National Long-Term Care 
Survey, a study emphasizing remarkable declines in the prevalence of 
chronic disability among the elderly in recent decades.
    James Lubitz of the National Center for Health Statistics has 
examined the connection between increased longevity and health care 
spending among the elderly in a number of articles. He suggests that 
the effects of longevity on Medicare acute care services and Medicaid 
long-term care benefits may run in different directions.
    Dr. James Fries of Stanford University first coined the theory of 
morbidity compression several decades ago to explain how the onset of 
serious disease and chronic disability may be delayed until later in 
life so that a larger portion of our life spans are spent in good 
health.
    Judy Feder is Professor and Dean of Policy Studies at Georgetown 
University, and also a senior scholar at Georgetown's Institute of 
Health Care Research and Policy. She previously served 3 years as 
Principal Deputy Assistant Secretary at the Department of Health and 
Human Services and has written extensively about the financing of 
Medicare, Medicaid, and long-term care in particular.

                                 ______
                                 
           Prepared Statement of Representative Pete Stark, 
                        Ranking Minority Member

    Thank you, Chairman Bennett. I would like to thank the Chairman for 
holding this hearing on the important issue of the growing elderly 
population, longevity, morbidity, and the implications for our health 
care system.
    The witnesses joining us today are leading researchers in this 
field and I'm looking forward to their testimony. We appreciate being 
able to draw on their vast experience and expertise as we grapple with 
the myriad public policy issues surrounding our increased longevity.
    That we are living longer is certainly good news, but the question 
that remains is what will our quality of life be as we age?
    Medicare and Medicaid provide health security for the elderly, but 
there's no comprehensive national strategy for long-term care. You 
can't predictably know when you or a family member might need such 
care, and many families cannot shoulder the burden of a long 
convalescence or illness.
    Most people can't buy cost-effective insurance for long-term care, 
and Medicare doesn't cover it. Medicaid does provide this type of 
support, but only for the very poor, and the scope and quality of 
services varies by state. We have seen cases of married couples 
divorcing just so that the very ill or dying person does not leave 
their spouse impoverished in order to obtain the care they need. This 
is hardly a family friendly policy.
    There is a crying need for a sensible strategy that provides 
quality and affordable long-term care. Dr. Lubitz points out that as 
our longevity improves more financial pressure will be put on an 
already stressed Medicaid system, while Medicare will experience only a 
little extra pressure. We can't fix this coverage gap through Medicaid.
    Dr. Feder points out the obvious need for a federally funded 
program, due to the fact that the demands for such care will vary by 
State and the ability of their working age population to support their 
elderly population. For example, she shows that in California we won't 
have nearly as large of a decline in the number of workers supporting 
our elderly over the next two decades as you will in Utah.
    With the baby boom generation aging, the need for long-term care 
will reach a crisis point if we don't act soon. I look forward to 
hearing from our witnesses about how we might avoid such a disaster.

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 Statement of James Lubitz, Acting Chief, Aging and Chronic Diseases, 
 Statistics Branch, National Center for Health Statistics Centers for 
  Disease Control and Prevention, U.S. Department of Health and Human 
                                Services

    Good morning Mr. Chairman and members of the Committee. I am James 
Lubitz, Acting Chief of the Aging and Chronic Disease Statistics Branch 
at the National Center for Health Statistics, Centers for Disease 
Control and Prevention. Before coming to CDC I worked for many years in 
the research office of the Centers for Medicare and Medicaid Services. 
I am pleased to be here today to participate in the hearing on 
``Getting Older, Staying Healthier: The Demographics of Health Care.'' 
I will discuss the highlights of research by myself and colleagues at 
CDC, CMS and the Urban Institute on the longitudinal patterns of 
medical expenditures from age 65 until death and how they relate to a 
broader picture of health and health care use by our elderly 
population.

                               BACKGROUND

    The Medicare program is 38 years old. There has been enough time to 
follow the experience of cohorts of Medicare enrollees from enrollment 
to death and to observe their patterns of health care use as they age. 
Today, the nation's health care system has changed dramatically from 
what it was at Medicare's beginning in 1966. We have experienced a 
growth in health care spending above the overall inflation rate. 
Furthermore, medical spending has grown faster for the elderly than for 
the under age 65 group (Meara et al., 2004). In 2000, per capita, 
inflation-adjusted health care spending for the 65 and older was 8.4 
times what it was in 1963; for those under 65 it was 4.6 times what it 
was in 1963. Medicare spending alone grew from 0.75 percent of GDP in 
1970 to 2.6 percent last year and is predicted to nearly double to more 
than 5 percent of GDP by 2020.
    Expectations for medical care have changed for the elderly. In the 
1970's there was serious discussion of the idea that medical spending 
in the aggregate did little good and that we were ``wasting'' a large 
percentage of medical expenses for high tech procedures on seriously 
ill persons who would die shortly anyway. The idea of setting limits on 
health care spending was proposed. In these discussions, the percentage 
of Medicare spending for persons in their last year of life was often 
exaggerated, and it was commonly believed that 50 or 75 percent of 
Medicare spending was for the last year of life.
    Today our population has high expectations for medical care and 
procedures like cataract removal, coronary revascularization, hip and 
knee replacements, and early treatment for heart attacks and strokes to 
restore function and reduce disability. Thus, although Medicare 
spending has grown and is expected to keep growing, Medicare 
beneficiaries may derive greater value from the program through better 
health and quality of life. Now there is increasing evidence that 
medical care is cost effective in the aggregate, as measured by 
treatment costs versus gains in life expectancy and improved health 
(Cutler and McClellan, 2001). There is also evidence that the overall 
health of the elderly has improved over the past few decades; although 
there is not complete agreement on the nature and degree of 
improvement. I expect the other witnesses will discuss in detail the 
topic of trends in the health of the elderly. The effect of improved 
health of the elderly on health spending is a complex subject, with 
some experts believing that improved health will lead to lower costs 
(Singer and Manton, 1998; Waidman and Liu, 2000). As I will try to make 
clear, the relationship between health, health care services and health 
care spending is complex, and under equally plausible scenarios better 
population health can lead to lower or higher health costs.
    The analyses that I present here have been developed from the 
administrative and survey data bases of CMS and CDC's NCHS.

               MEDICARE COSTS IN THE FINAL YEARS OF LIFE

    The Medicare program is unique in that it is the only health 
insurance program in which people enroll (at age 65) and are expected 
to remain until their death. Consequently, Medicare covers the medical 
costs of the final years of life of 75 percent of the U.S. population. 
We would expect that Medicare costs in the final years would be higher 
than in the prior years, because patients are, in general, very sick 
before death and final year costs are high. Costs in the last year of 
life account for 28 percent of Medicare costs in a given year. But 
because this percentage has held steady for two decades--despite all 
the changes in medicine and in the health care delivery system--we can 
say that costs in the last year of life have just kept pace with 
overall growth in Medicare costs and are not disproportionately 
responsible for the Medicare spending increase. There is no evidence 
that ``heroic'' efforts to extend life, to whatever extent they occur, 
have been driving Medicare cost increases.
    Perhaps it should not be surprising that this percentage has been 
steady. Physicians are often faced with uncertain prognoses for 
severely ill patients. This may limit the scope of changes in the care 
of dying patients. Within the last year of life, we find costs 
concentrated in the last months--the last 2 months of life account for 
over half of the average beneficiary's costs in the final year. And, 
again, this percent seems to have held steady.
    We have also found that Medicare costs in the last year are lower 
for older decedents. Medicare spending in the last year of life for 
decedents age 90 or over is only 58 percent of that for decedents age 
65-69. This may reflect an inclination on the part of providers toward 
less aggressive interventions for the very old in their final years. 
But, as we will note below, long-term care costs (of which only a small 
part are covered by Medicare), are considerably higher for older 
decedents than younger ones.
    The high costs of the final years provide an insight into why 
Medicare spending per enrollee per year is higher for older than 
younger enrollees. To a large extent the difference reflects the higher 
death rate of older enrollees and the concomitant end of life costs; 
not advanced age, per se. All things being equal, falling death rates 
will decrease the annual, per enrollee Medicare costs in each age 
group, so the older aged may cost relatively less per capita tomorrow 
than today. In other words, it is the number of years before death, 
more than chronological age, which drives Medicare spending.

                  MEDICARE COSTS FROM AGE 65 TO DEATH

    The medical care costs for the elderly in any year are made up of 
the costs of enrollees at various ages and various times before death. 
In any calendar year, some persons will have a life expectancy of many 
years; others will be in their final year and likely incurring high 
medical costs. The sum of the costs for all these enrollees comprises 
annual Medicare spending. We examined cumulative medical costs from age 
65 until death for persons dying at each age from 65 to 100 to study 
the relationship between longevity past age 65 and total medical care 
costs, including both Medicare covered and other costs (Figure 1).
    We find that, on average, past age 70 or 75, each additional year 
lived adds little to Medicare costs. This is especially true for long-
lived individuals. A person who lived to 90 as compared to 89 cost 
Medicare only $404 more (in 1990 dollars), while a person who lived to 
70 compared to 69 cost Medicare $3,571 more. The additional years 
covered by Medicare for longer lived persons are the years farthest 
from death. For any enrollee, whether they die at 80 or 90, Medicare 
will pay the high costs of their final illnesses. The added years 
covered for the long-lived persons are the relatively healthy, low-cost 
years far from the end of life. The farther an enrollee is from the 
final year, the less costly they are for Medicare. For instance, the 
added years covered for someone dying at age 90, rather than 85 are the 
25th to the 21st year before death when the enrollee is likely to be in 
good health. The fact, noted earlier, that Medicare end-of-life costs 
are lower for older decedents is another reason that long-lived 
enrollees do not cost Medicare much more that shorter-lived ones.

     COST FROM AGE 65 TO DEATH FOR SERVICES MEDICARE DOES NOT COVER

    Up to now I have been discussing only Medicare costs. Now I will 
describe patterns of use of all services--both Medicare-covered and 
those that Medicare doesn't cover. As you know, Medicare on average 
pays about 55 percent of the health care costs of persons 65 and over. 
The rest is paid out-of-pocket by beneficiaries and their families, by 
Medicaid and other public programs, and by private supplementary 
insurance plans. Principal services not covered are nursing home care 
other than the specific Skilled Nursing Facility Benefit, most 
outpatient prescription drugs (though, of course, the New Medicare drug 
benefit will start in 2006), and home health care not eligible for 
Medicare reimbursement.
    We saw that Medicare costs in the final years of life are 
considerably lower for older decedents. However, this is not the case 
for non-covered services. Nursing home expenses in the last 2 years of 
life are much higher for older decedents compared to younger ones. The 
nursing home expenses of persons dying at 90 are, on average about five 
times higher than that of persons dying at 70. In fact, from age 90 on, 
average per capita expenses in the final 2 years of life for nursing 
home care exceed the average per capita Medicare expenses in the final 
2 years of life for all covered services combined, highlighting the 
high cost of long-term care for our oldest old. Although concern about 
costs in the final year of life has focused on the appropriateness of 
expensive, high tech care, long-term care costs are, in fact, of more 
importance for the oldest old.
    The effect of longevity on total health spending is different from 
the effect on just Medicare spending. Because long-term care costs 
accelerate with age, they offset the considerably lower Medicare costs 
in the final years for older decedents. An added year of life from age 
90 to 91 adds about the same amount to cumulative health care costs 
from 65 to death as an added year from age 70 to 71 (Figure 1). This 
illustrates the different effects age and demographic factors can have 
on total health spending as compared to just Medicare spending.
    Over the next decades, our Nation will experience major demographic 
changes. They include a large growth in the number of persons age 65 
and over as the baby boomers reach retirement age and increased life 
expectancy after age 65. We isolated the possible effects of these 
changes on both Medicare spending and overall health spending for 
elderly persons. The three specific demographic factors we considered 
were, (1) the increase in the numbers of persons born in 1955, who will 
turn 65 in 2020, as compared with the number born in 1925, who turned 
65 in 1990, (2) the better survival from birth to age 65 of the 1955 
birth cohort as compared to the 1925 birth cohort, and (3) increased 
life expectancy at age 65 for the 1955 cohort.
    I need to make clear that the purpose of the simulations is only to 
isolate the effect on health spending of likely demographic changes. We 
do not account for possible medical advances, changes in patterns of 
utilization, disease or disability or, importantly, changes in Medicare 
or Medicaid rules about payment, benefits and eligibility.
    First, we consider the effects of these changes on just Medicare. 
We find that of the 88 percent greater spending (in constant dollars) 
from age 65 to death for the cohort who turn 65 in 2020, by far the 
most important demographic factor behind that increase was the greater 
number of persons in the 1955 birth cohort (baby boomers who will turn 
65 in 2020). The 1955 birth cohort was 58 percent larger than the 1925 
birth cohort. The second most important factor was the improved 
survival from birth to age 65 of the later cohort. In the 1925 birth 
cohort, 69 percent survived to age 65; in the 1955 cohort an estimated 
80 percent will survive to 65. The greater expected life span past age 
65 of 1.4 years for the 1955 birth cohort was a minor factor in the 
increase.
    To put the findings in quantitative terms; 74 percent of the 
greater Medicare spending (in constant dollars) for the baby boomers 
born in 1955 will be the result of a larger birth cohort, 23 percent 
will be due to a lower death rate from birth to age 65, and only 3 
percent will be the result of longer life past 65. This reflects the 
finding noted earlier; given that Medicare covers the expensive final 
years of life, living to 90 as compared with 85 does not add that much 
in Medicare costs.
    The findings are somewhat different when we consider overall health 
care spending, not just spending for what Medicare covers. The larger 
birth cohort is still by far the most important reason for increased 
total health care costs for the baby boomers once they become seniors, 
followed by better survival from birth to 65. But, because of its 
effect on long-term care costs, longer life expectancy at age 65 has a 
larger effect on long-term care costs than on Medicare costs. For 
example, the 3 percent increase in life expectancy at 65 for the cohort 
turning 65 in 2015 compared with those turning 65 in 2000 was 
responsible for a 1 percent increase in Medicare costs, but a 6 percent 
increase in nursing home costs.

    EXPECTED SPENDING FOR PERSONS IN GOOD HEALTH VERSUS POOR HEALTH

    Because the health of the elderly has been improving, as measured 
by improved life expectancy and functional status, it is of interest to 
compare the cumulative health care costs from 70 to death for healthy 
versus less healthy persons. We simulated total medical spending from 
age 70 to death by health status, as measured by both self-reported 
functional status and self-reported health status (from excellent to 
poor). Functional status measures the ability to perform a variety of 
activities and tasks, like climbing stairs; managing daily tasks, like 
housecleaning and meal preparation, and self-care activities, like 
bathing and dressing.
    No matter what measure we used, we found that as expected, persons 
reporting better health at age 70 lived longer than persons in worse 
health. Furthermore, they spend most of their longer life span past age 
70 in excellent or good health, while persons reporting poor health at 
age 70 lived only two thirds as long and spent most of that time in 
fair or poor health.
    We found that the total, cumulative medical spending from age 70 
until death was similar for persons in good health at 70 versus those 
in poor health at 70. This was so even though the healthier persons had 
more years to accumulate costs. This was also true whether we looked at 
just Medicare spending or at total health care spending. Better health, 
which produces lower yearly costs, offsets the effect of more years to 
accumulate costs.

                              IMPLICATIONS

    If we imagine a situation in which the number of persons turning 65 
and coming onto Medicare is constant, then increases in life expectancy 
past age 65 would not have a large effect on the Medicare budget under 
current patterns of health care spending (although the effect on 
Medicaid would likely be greater because of Medicaid's large role in 
paying for long-term care costs for the elderly). Increases in life 
expectancy can result from a mixture of better life styles (e.g. diet, 
exercise) and use of preventive and screening services, and from 
medical advances, which can mean both more efficient, money-saving 
treatments as well as innovative, costly new treatments. The extent of 
influence of each is unclear. A good example of how the role of these 
factors may change is the decline in mortality from cardiovascular 
diseases, which began in the 1950's. At the beginning the drop in 
mortality was attributed largely to improved life styles--less smoking, 
etc. Currently, however, experts attribute the continuation of the 
downward trend as much to new medical interventions as to improved life 
styles (Hunink et al. 1997).
    Life style improvements generally come at low cost to the medical 
care delivery system because they result from behavior change prompted 
by public education. And, of course, the costs of health promotion 
efforts in the pre-Medicare years are not borne by the Medicare 
program. There is evidence from some epidemiologists that a favorable 
health risk profile in middle age may result in both longer life and 
lower than average Medicare costs (Daviglus et al. 2003; Lui et al. 
2003). These researchers also find, interestingly, that Medicare costs 
in the last year of life are lower for persons with favorable risk 
profiles in middle age.
    Today, it is not clear what the health of the future elderly will 
be. Favorable trends in reduced smoking, better control of hypertension 
and lower cholesterol compete with an alarming increase in the percent 
of persons in all age groups who are overweight or obese. This includes 
increases for those middle-aged baby boomers who will begin to enter 
Medicare in 2011, just 7 years from now.
    Health improvements also result from expensive interventions. For 
example, the numbers of coronary artery bypass surgeries and coronary 
angioplasties, two procedures developed after the establishment of 
Medicare have greatly increased. Originally, they tended to be 
performed on the middle-aged and younger elderly. Now, as experience 
has grown among providers and techniques have improved, these heart 
procedures are frequently performed on the older aged. This example 
points out the difficulty of predicting future developments. It is 
difficult to predict whether improved health and life expectancy will 
result more from expensive interventions for the elderly or from better 
health in the middle aged, pre-Medicare group. It is possible to 
simulate the effects of various future scenarios, but not to predict 
the future, except, of course, for the certainty of a large increase in 
the number and percent of the U.S. population over age 65.
    Under current patterns, greater longevity will increase the need 
for, and spending on, long-term care. And in contrast to acute care, 
long-term care is paid mostly by Medicaid and out of pocket by patients 
and families. Thus, longevity improvements may very well have different 
effects on Medicare and Medicaid--putting little extra pressure on 
Medicare but more on Medicaid. It may also increase the financial and 
care giving burdens on patients and families. There may be a 
concomitant movement from informal care to formal paid care because in 
the future there will be fewer working age persons in relation to the 
elderly. This would increase the direct costs of long-term care. This 
pessimistic picture assumes that the same age related patterns of 
frailty and cognitive loss that we see today will persist into the 
future. We do not know, however, if this will be the case. The 
compression of morbidity hypothesis posits that the amount of time in 
poor health will be less among the future elderly than among today's 
elderly. If morbidity is indeed becoming compressed, medical costs 
should be affected--possibly reducing them if the number of months in 
poor health declines (or increasing them if the improvement comes from 
expensive medical procedures). We plan to pursue this topic in future 
studies.
    I thank you for your attention and look forward to answering any 
questions you may have.

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         Statement of Judith Feder, Ph.D., Professor and Dean, 
       Georgetown Public Policy Institute, Georgetown University

    Mr. Chairman, members of the Committee, I'm pleased to have the 
opportunity to testify before you today on future policy toward the 
growing elderly population. My focus will be on long-term care--
specifically, on the implications of growing numbers of elderly for 
public policy toward long-term care financing. My testimony will 
reflect more than twenty-five years of research experience in long-term 
care, at Georgetown University and, before that, the Urban Institute. 
Based on that research, my policy conclusions are the following:
     In contrast to policies toward income and. health security 
(Social Security and Medicare), the Nation lacks a policy that assures 
people of all ages access to quality long-term care when they need it, 
without risk of impoverishment.
     The need for long-term care is unpredictable and, when 
extensive service is required, financially catastrophic--best dealt 
with through insurance, rather than personal savings. But neither 
Medicare nor private insurance provides that insurance protection.
     The Federal-State Medicaid program provides invaluable 
support to those who need long-term care, but only when and if they're 
impoverished. Its protections vary substantially across states, and, in 
most states, fail to assure access to quality care, especially in 
people's homes.
     A much larger elderly population--the aging of the baby 
boom--is likely to substantially increase the numbers of people who 
need long-term care, even if the proportion of elderly who need it 
declines. The result will be greater demand on an already significantly 
stressed Medicaid program, squeezing out states' ability to meet other 
needs and, at the same time, likely reducing equity and adequacy across 
states.
     Although private insurance and certainly private resources 
can contribute to financing, long-term care security--throughout the 
nation--requires new Federal policy and a significant investment of 
Federal funds.
    The following will lay out inadequacies in current long-term care 
financing; the implications of growth in the elderly population for 
future inadequacies; and the importance of Federal policy to sustain 
and improve long-term care protection. Unless otherwise noted, I am 
drawing on research from the Georgetown Long-term Care Financing 
Project, funded by the Robert Wood Johnson Foundation, and available at 
our web site: ltc.georgetown.edu. The opinions I present are, of 
course, only my own.
    People who need extensive assistance with basic tasks of living 
(like bathing, dressing and eating) face the risk of catastrophic costs 
and inadequate care. Today, almost 10 million people of all ages need 
long-term care. Only 1.6 million are in nursing homes. Most people 
needing long-term, especially younger people, live in the community. 
Among people not in nursing homes, fully three quarters rely solely on 
family and friends to provide the assistance they require. The range of 
needs in considerable--with some people requiring only occasional 
assistance and others needing a great deal. Intensive family care-
giving comes at considerable cost--in employment, health status and 
quality of life--and may fail to meet care needs. Nationally, one in 
five people with long-term care needs who are not in nursing homes 
report ``unmet'' need, frequently resulting in significant 
consequences--falling, soiling oneself, or, inability to bathe or eat. 
The cost of paid care exceeds most families' ability to pay. In 2002, 
the average annual cost of nursing home care exceeded $50,000 and 4 
hours per day of home care over a year were estimated to cost $26,000. 
Clearly, the need for extensive paid long-term care constitutes a 
catastrophic expense.
    The likelihood of needing long-term care is also unpredictable. 
Although the likelihood increases with age, close to 40 percent of 
people with long-term care needs are under the age of 65. And the need 
for care among the elderly varies considerably. Over a lifetime, 
projections of people currently retiring indicate that 30 percent are 
likely to die without ever needing long-term care; fewer than 10 
percent are likely to need less than a year of care, and about 20 
percent are likely to need care for 5 years or more.
    Given the reality that long-term care is an unpredictable need for 
a potentially catastrophic expense, insurance makes sense. Reliance on 
savings alone is inefficient and ineffective. People will either save 
too much or too little to cover expenses. But few people have adequate 
long-term care insurance. Although sales of private long-term care 
insurance are growing (the number of policies ever sold more than 
tripled over the 1990's), only about 6 million people are estimated to 
currently hold any type of private long-term care insurance. Although 
there is potential for substantial expansion of that market, private 
long-term care insurance policies offer a limited means to spread long-
term care risk: they are not available to those who already have long-
term care needs; are not even advocated as a means of protecting young 
people against the risk of disability; offer benefits limited to fixed 
dollar amounts rather than to the cost of needed services; and are 
acknowledged to be unaffordable or insufficient to protect the 
substantial. segment of elderly persons, now and in the future, with 
low and modest incomes. We need only look at experience in health 
insurance to recognize that reliance on the individual market--plagued 
by risk selection, high marketing costs, benefit exclusions, and other 
problems--for long-term care will be grossly inadequate to assure 
adequate protection.
    Current public policy also falls far short of assuring insurance 
protection. Medicare, which provides health insurance to many who need 
long-term care, covers very little long-term care. Its financing for 
nursing home care and home care is closely tied to the need for acute 
care and is available for personal care only if skilled services--like 
nursing and rehabilitation therapy--are also required. It is Medicaid 
that provides the nation's long-term care safety net. But Medicaid 
protections differ considerably from what we think of as ``insurance''. 
Medicaid provides invaluable coverage of long-term care expenses, but 
only after people have exhausted virtually all of their own resources. 
As a result, Medicaid does not protect against financial catastrophe; 
it finances services only after catastrophe strikes.
    Further, Medicaid's benefits focus overwhelmingly on nursing home 
care--an important service for some, but not the home care services 
preferred by people of all ages. In the last decade, Medicaid home care 
spending has increased from 14 percent to 29 percent of Medicaid's 
total long-term care spending. But nursing homes still absorb the 
lion's share of Medicaid's support for long-term care.
    Medicaid protection also varies considerably from State to state. 
As a Federal-State matching program, Medicaid gives states the primary 
role in defining the scope of eligibility and benefits. A recent Urban 
Institute analysis emphasized the resulting variation across states in 
service availability as a source of both inequity and inadequacy in our 
financing system. In an examination of 1998 spending in 13 states, 
long-term care dollars per` aged, blind, or disabled enrollee in the 
highest spending states (New York and Minnesota) were more than 4 times 
greater than in the lowest (Alabama, Mississippi)--a differential even 
greater than that found for Medicaid's health insurance spending for 
low-income people.
    Both our own research and that conducted by the General Accounting 
Office (now the Government Accountability Office) tells us that 
differences in State policies have enormous consequences for people who 
need long-term care. Studies comparing access for individuals with very 
similar needs in different communities show that people served in one 
community get little or no service in another. Georgetown research 
finds that the same person found financially eligible or sufficiently 
impaired to receive Medicaid services in one State might not be 
eligible for Medicaid in another--and, if found eligible, might receive 
a very different mix or frequency of service. And research (in 
progress) comparing use of paid services in 6 states finds almost twice 
the incidence of unmet need (56 percent) in the State with the smallest 
share of people likely to receive paid services as in the State with 
the largest (31 percent).
    This variation--as well as ups and downs in the availability of 
benefits over time--undoubtedly reflects variation in states' 
willingness and ability to finance costly long-term care services. The 
recent recession demonstrated the impact on states of changes in their 
economies and the vulnerability of Medicaid recipients to states' 
reactions. In 2001, Medicaid accounted for 15 percent of State 
spending, with long-term care responsible for 35 percent of the total. 
Virtually all states were cutting their Medicaid spending as budget 
pressures struck, endangering access either for low-income people 
needing health insurance, older or disabled people needing long-term 
care, or both.
    In sum, under current policy, neither public nor private insurance 
protects people against the risk of long-term care. Despite Medicaid's 
important role as a safety net, the overall result for people who need 
care is catastrophic expenses, limited access to service, and care 
needs going unmet.
    Given inequities and inadequacies in our current approach for long-
term care, it is no wonder that we are concerned about the future, when 
a far larger proportion of the nation's population will be over age 65 
than are today. Experts disagree on whether disability rates among 
older people in the future will be the same as or lower than they are 
today. But even if the proportion of older people with disabilities 
declines, the larger number of older people will likely mean a larger 
number of older people will need long-term care in the future than need 
it today. The population aged 85 and older, who are most likely to have 
long-term care needs, will double by 2030 and quadruple by 2050.
    States will vary in the aging of their populations--with resulting 
differences in the demand for long-term are and the ability of their 
working-aged population to support it. To identify future demands on 
Medicaid, forthcoming Georgetown analysis presents census data on the 
ratio of elderly people to working-age adults between 2002 and 2025. 
Nationally, this ratio changes from about one to five (one person over 
age 65 for every 5.2 people of working age) in 2002 to one to three--an 
increase of about 66 percent. But the changes differ across states, 
with some states well below the national average (e.g. California, 
Connecticut, D.C., Massachusetts) and others, far above. In many 
states, the ratio increases by more than three quarters and in a few 
(e.g. Colorado, Utah, and Oregon), it more than doubles. All states 
will be challenged to meet increased long-term care needs.
    States are already struggling with Medicaid's fiscal demands, which 
challenge their ability to meet equally pressing needs in education and 
other areas. And State revenue capacity varies considerably. If current 
policies persist, pressure to make difficult tradeoffs will only get 
stronger. In the future, states with bigger increases in the elderly-
to-worker ratio will face the greatest pressure. And, since many of the 
states with the most dramatic changes are currently spending the least 
on Medicaid long-term care, there is a strong likelihood that in the 
future, long-term care financing will be even less equitable and less 
adequate across the Nation than it is today.
    What's needed for a different future is public policy action. 
Essentially, the Nation faces a choice: do we want to live in a society 
in which we assure access to affordable quality long-term care for 
people who need it or in a society in which we leave people in need to 
manage as best they can on their own? A recent CBO report emphasizes 
the latter approach--a combination of cutbacks in already inadequate 
Medicaid protection aimed essentially at forcing people to purchase 
private insurance and tax preferences to reduce the costs--and thereby 
promote the purchase--of private long-term care insurance. In my view, 
Medicaid cuts constitute cruel and unusual punishment for people truly 
unable to cope by themselves. Some people simply cannot afford 
insurance. And, as CBO recognizes, given the limited benefits of 
private long-term care insurance (relative to the potential cost of 
care), even those who purchase insurance may face catastrophic costs. 
Further, proposed tax preferences clearly favor the better off over 
those in greatest need. Experience with health insurance tells us that 
such credits are likely to primarily benefit those who would have 
purchased long-term care insurance even in the absence of credits--
substituting public for private dollars--and, as currently proposed, 
are not even designed to reach the substantial portion of older and 
younger Americans with low and modest incomes.
    The right way to address both current and future long-term care 
needs requires a commitment of public resources--and, to be adequate 
and effective in all states--Federal resources. Expanded public 
financing for long-term care could take a variety of forms and by no 
means need eliminate private contributions. One option, modeled on 
Social Security, would be to provide everyone access to a ``basic'' or 
``limited'' long-term care benefit, supplemented by private insurance 
purchases for the better-off and enhanced public protection for the 
low-income population. Another option would be establishment of a 
public ``floor'' of asset protection--a national program assuring 
everyone access to affordable quality long-term care--at home as well 
as in the nursing home--without having to give up all their life 
savings as Medicaid requires today. The asset floor could be set to 
allow people who worked hard all their lives to keep their homes and 
modest assets, while allowing the better off to purchase private long-
term care insurance to protect greater assets. Either public/private 
combination could not only better protect people in need; it could also 
provide substantial relief to states to focus on health insurance, 
education and other pressing needs--relief that Governors have 
explicitly requested by calling on the Federal Government to bear the 
costs of Medicare/Medicaid ``dual eligibles''. My highest priority for 
expenditure of the next Federal dollar would be responding to this call 
(along with supporting more home care and better quality care) with 
more Federal dollars to Medicaid.
    Some will undoubtedly characterize proposals like these as 
``unaffordable'', given the fiscal demands of Medicare and Social 
Security and the current Federal budget deficit. But that deficit 
reflects policy choices. And I would far rather see expenditure of the 
next Federal dollar devoted to enhanced Medicaid long-term care 
financing than to tax credits for long-term care or tax cuts in 
general. Indeed, the estate tax is especially appropriate for long-term 
care financing: taxing everyone's estate at certain levels, to provide 
reasonable estate protection for those unlucky enough to need long-term 
care.
    As we look to the future, examination of the choices being made by 
other nations of the world is instructive. Analysis by the Organization 
for Economic Cooperation and Development (OECD) of long-term care 
policy in 19 OECD countries (presented at the June research meeting of 
AcademyHealth) found that the number of countries with universal public 
protection for long-term care (Germany, Japan and others) is growing. 
Public protection, they report, does not imply the absence of private 
obligations (cost sharing and out-of-pocket spending), nor does it 
imply unlimited service or exploding costs. Rather, in general, it 
reflects a ``fairer'' balance between public and private financing--
relating personal contributions to ability to pay and targeting 
benefits to the population in greatest need. Many of these nations have 
substantially larger proportions of elderly than the U.S. does today 
and therefore can be instructive to us as we adjust to an aging 
society.
    Clearly, we will face choices in that adjustment. If we are to be 
the caring society I believe we wish ourselves to be, we too will move 
in the direction of greater risk-sharing and equity by adopting the 
national policy and committing the Federal resources which that will 
require.
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