Limited and Expensive Options
Caring for chronically ill or elderly patients presents difficult and expensive choices for Americans: they must either provide long-term care at home or rely on nursing homes. Home health care was the fastest-growing segment of the health care industry during the first half of the 1990s. Although the rate of growth slowed during the late 1990s, the Centers for Medicare & Medicaid Services (CMS) project that the home health care sector will double, from $29.6 billion in 2002 to $60 billion in 2013.
The situation for disabled older adults who remain at home can be grim. Nine out of ten must rely on their families for some portion of their care, and 80% rely totally on their families, often creating tremendous financial and emotional strains on the household. Women are usually the caregivers, whether the older adults are their own parents or their in-laws, and sometimes they must sacrifice their jobs and incomes to care for elderly dependents. Hiring an unskilled worker to care for the sick or elderly in the home can cost more than $25,000 a year; skilled inhome care is even more expensive.
High Costs of Nursing Home Care
With the elderly population growing rapidly, the problems of long-term care and its costs have become urgent public policy and social issues. Nursing home care costs about $40,000 per year, and in some homes the costs can exceed $80,000 a year. Medicare does not cover routine nursing home care, and Medicaid is intended to cover expenses only for the poor. A MetLife Market Survey on Nursing Home and Home Care Costs (Westport, CT: MetLife Mature Market Institute, April 2002) found that the average daily charge was $168 for a private room and $143 for a semi-private room.
To be eligible for Medicaid, a person must have no more than $2,500 in assets. (In the case of a married couple where only one spouse is in a nursing home, the remaining spouse can retain a house, a car, up to $75,000 in assets, and $2,000 in monthly income.) Many elderly persons must "spend down" to deplete their entire life savings in order to qualify for Medicaid assistance. The term refers to a provision in Medicaid coverage that provides care for seniors whose income exceeds eligibility requirements. If their monthly income is $100 over the state Medicaid eligibility line, they can spend $100 a month on their medical care, and Medicaid will cover the remainder.
Although supplemental "Medigap" policies available through private insurers pay for some costs not covered by Medicare, most of these policies do not cover the average nursing home stay. Many older adults are eager to buy private insurance policies for long-term care. The average policy, covering two years of care after a one-hundred-day waiting period, costs about $300 a month for a couple in which the husband is in his early seventies and the wife in her late sixties. For many older adults with fixed incomes, the cost of long-term care insurance prevents them from obtaining it.
Coverage provided by these private policies varies widely. Some insurers refuse to pay for the first twenty days in a nursing home, and others require a waiting period of one-hundred days before they will pay. Some offer coverage for only one year; others allow longer stays. Because of the variations and limitations on coverage, some policyholders have had their claims denied or their policies cancelled. The purchasers of such policies must be very careful to understand the specific provisions and terms of their benefits.
A combination of federal, state, and private monies finance nursing home care. According to the Administration on Aging (AoA), in 2003 about half of the funds came from Medicaid, 25% were from Medicare, and the balance came from private payment and private insurance.
HIV/AIDS—Treatment Is Costly
HIV/AIDS treatment, like treatment of cancer and other chronic diseases, is expensive. Even though newer drug treatments—highly active antiretroviral therapy (HAART)—had higher per unit costs, their introduction in 1996 reduced total health care spending by reducing the rate of hospitalization and use of outpatient care. According to a study conducted by the Rand Corporation and published in the March 15, 2001, issue of the New England Journal of Medicine, the average HIV patient incurred medical costs of about $1,410 per month in 1998. In 1998 a year's worth of treatment for HIV could cost as much as $18,000 per patient. An individual with AIDS could spend up to $77,000 per year on medication alone.
Some HIV/AIDS patients rely on health insurance to help pay these costs, but many patients are not insured. Many policies exclude or deny coverage to persons with pre-existing conditions, and as a result many HIV-positive people are denied private health insurance.
Medicaid pays the costs of approximately half of all adults and nearly 90% of children living with HIV/AIDS, according to the Office of National AIDS Policy, a White House agency. Medicaid eligibility requirements vary from state to state; it generally covers people with incomes of less than $625 per month who cannot engage in substantial gainful employment due to physical or mental impairment that is expected to last at least one year or result in death. Medicaid programs vary widely by jurisdiction; many states supplement federal funding with state funds and each state determines not only the eligibility criteria for its program but also the benefits—the number and type of treatments—provided through the program.
Some expenses, however, have actually been reduced by relocating services from the hospital to a variety of outpatient settings. Examples of cost-saving services include outpatient transfusions and outpatient treatment for opportunistic infections such as Pneumocystis carinii pneumonia (PCP) and cryptococcal meningitis. Increased volunteer-based social service programs that enable patients to be cared for at home also serve to prevent prolonged, expensive hospital stays.
Federal government spending on HIV-related care and activities has increased steadily since 1985. In 2002 the Budget Office of the Public Health Service estimated that federal spending for HIV-related expenses was nearly $15 billion, $9.1 billion of which was spent on medical care. Other government costs included research ($2.6 bilion), education and prevention ($1.6 billion), and cash assistance ($1.6 billion), which is provided through the Social Security Administration and the Department of Housing and Urban Development.
In fiscal year 2005 an estimated $19.8 billion will be spent on HIV-related care. Nearly 60% of the allocation is for care activities, 9% is for cash and housing assistance, and 12% is for global research, which does not include international research (when international research is included in the global category, it rises to 14%). About half of the budget ($10.1 billion) will fund entitlement programs—Medicaid, Medicare, Social Security disability Insurance (SSDI), and Supplemental Security Income (SSI).
The High Costs of Research
Medical and pharmaceutical research to develop and conduct clinical trials of antiretroviral drugs is expensive. In 2005 the National Institutes of Health (NIH) spent an estimated $2.9 billion for HIV/AIDS research, compared to about $440 million to investigate obesity prevention and treatment.
Decisions about how much is spent to research a particular disease are not based solely on how many people develop the disease or die from it. Rightly or wrongly, economists base the societal value of an individual on his or her earning potential and productivity—the ability to contribute to society as a worker. The bulk of the people who die from heart disease, stroke, and cancer are older adults. Many have retired from the workforce, and their potential economic productivity is usually low or even nil. (This is not an observation about how society values older adults; instead it is simply an economic measure of present and future financial productivity.)
In contrast, AIDS patients are usually much younger, dying in their twenties, thirties, and forties. Until they developed AIDS, their potential productivity, measured in economic terms, was high. The number of work years lost when they die is considerable. Using this economic equation to determine how disease research should be funded, it may be considered economically wise to invest more money to research AIDS since the losses, measured in potential work years rather than lives, is so much greater.
The primary goals of HIV/AIDS therapy are to prolong life and improve its quality. Few researchers expect any drug to cure HIV infection; their objective is to make the virus less deadly by foiling its efforts to reproduce within the body. A major obstacle to the discovery of such treatments is the cost of drug research and development. Pharmaceutical manufacturers spend millions of dollars researching and developing new medicines. According to the Pharmaceutical Research and Manufacturers of America, U.S. pharmaceutical companies spend more money each year on research and development activities than the annual budget of the NIH.
Once a new drug receives federal Food and Drug Administration (FDA) approval, its manufacturer is ordinarily allowed to hold the patent on the drug in order to recoup its investment. During that time, the drug is priced much higher than if other manufacturers were allowed to compete by producing generic versions of the same drug. After the patent expires, competition between pharmaceutical manufacturers generally lowers the price. In contrast, HIV/AIDS drugs are granted only seven years of exclusivity under legislation aimed at encouraging research and promoting development of new treatments.
The pharmaceutical manufacturer must cover the cost not only of research and development for the approximately three out of ten drugs that succeed, but also for many—seven out of ten—that have failed. In contrast, the producer of generic drugs has the formula and must simply manufacture the drugs properly. The generic manufacturer does not have to pay for successful and unsuccessful research and development of new drugs, nor does it have to pursue the complicated, time-consuming process of seeking and obtaining FDA approval.
Cancer
Cancer, in all its forms, is extremely expensive to treat. Americans often resort to many different methods of treatment in search of a cure. In addition, it can be costly to treat the adverse side effects of radiation, chemotherapy, and other therapies. Pain management is also expensive for cancer patients. The National Institutes of Health (NIH) estimated the overall annual cost of cancer in 2002 as nearly $190 billion, of which $64.2 billion was for direct medical costs. The balance was attributed to indirect costs associated with lost productivity due to illness or death.
Generally, the younger a patient, the higher the cost, since younger patients can often fight the disease longer than older patients can. Most expenses for cancer treatment occur at the end of life: hospitalization for the initial phase of treatment costs only 38% as much as terminal care.
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