The Cost of Health Care - Who Pays For End-of-life Care?

The Committee on Care at the End of Life of the Institute of Medicine (IOM) noted in its 1997 report Approaching Death: Improving Care at the End of Life (Washington, DC) that nearly three-fourths (74.7 percent) of those who die each year are 65 years and older. Medicare covers these older adults during the terminal stage of their lives. Medicaid further covers 13 percent of those older adults who have exhausted their Medicare benefits, as well as poor and disabled younger patients. Health programs under the Department of Veterans Affairs and the Department of Defense also pay for terminal care.

In his June 11, 2003, testimony to the U.S. Senate Committee on Appropriations, Donald Hoover of the Rutgers Institute for Health, Health Care Policy and Aging Research presented data on medical expenditures during the last year of life for Americans 65 years and older. Hoover noted that Medicare currently pays most end-of-life medical costs for individuals in this age group but stated that the elderly may be expected to pay an increasing proportion of end-of-life costs as the number of elderly individuals in the population increases and end-of-life costs increase as a result.

The results of Hoover's research showed that an average person over 65 who died between 1992 and 1996 created approximately $40,000 of medical expenditures in his or her last year of life. Of this amount, Medicare paid approximately $32,800 (82 percent), supplemental/private insurance paid about $2,000 (5 percent), and the individual paid approximately $5,200 (13 percent). Hoover noted that several initiatives such as hospice and advanced directives have attempted to reduce end-of-life medical costs. However, those costs have not decreased notably as a fraction of Medicare expenditures over the past twenty-five years. Currently about 25 percent of Medicare expenditures and about 20 percent of all health care expenditures for the elderly go to those in their last year of life.

No specific information about the cost of end-of-life care exists for the one-fourth of those who die every year who are under age 65. Such care is more than likely financed by employer health insurance, personal funds, Medicare, and Medicaid. Nonetheless, aside from funds paid out for hospice services, the government has no other information about this group's terminal health care.

Medicare Hospice Benefits

In 1982 Congress created a Medicare hospice benefit program (Tax Equity and Fiscal Responsibility Act, PL 97-248, 122) to provide services to terminally ill patients with six months or less to live. In 1989 the Government Accounting Office (GAO) reported that only 35 percent of eligible hospices were Medicare-certified, in part due to the Health Care Financing Administration's low rates of reimbursement to hospices. That same year Congress gave hospices a 20 percent increase in reimbursement rates through a provision in the Omnibus Budget Reconciliation Act (PL 101-239, 6005).

FIGURE 9.1
The nation's health dollar, 2002

TABLE 9.3
Medicare enrollees and expenditures, by type of service, selected years 1970–2001
[Data are compiled from various sources by the Centers for Medicare & Medicaid Services]

Type of service	1970	1980	1990	1995	1997	1998	1999	2000	20011
Enrollees	Number in millions
Total2	20.4	28.4	34.3	37.6	38.5	38.9	39.2	39.7	40.0
Hospital insurance	20.1	28.0	33.7	37.2	38.1	38.5	38.8	39.3	39.6
Supplementary medical insurance	19.5	27.3	32.6	35.6	36.4	36.8	37.0	37.3	37.6
Expenditures	Amount in billions
Total	$7.5	$36.8	$111.0	$184.2	$213.6	$213.4	$212.9	$221.8	$244.8
Total hospital insurance (HI)	5.3	25.6	67.0	117.6	139.5	135.8	130.6	131.1	143.4
HI payments to managed care organizations3	- - -	0.0	2.7	6.7	16.3	19.0	20.9	21.4	20.8
HI payments for fee-for-service utilization	5.3	25.6	64.3	110.9	123.1	116.8	109.8	109.7	122.6
Inpatient hospital	4.8	24.1	56.9	82.3	89.2	87.4	86.5	87.3	95.6
Skilled nursing facility	0.2	0.4	2.5	9.1	12.5	13.1	10.9	10.9	13.4
Home health agency	0.1	0.5	3.7	16.2	17.5	11.6	7.3	3.9	4.2
Home health agency transfer4	- - -	- - -	- - -	- - -	- - -	0.5	0.6	1.7	3.1
Hospice	- - -	- - -	0.3	1.9	2.1	2.2	2.6	3.0	3.7
Administrative expenses5	0.2	0.5	0.9	1.4	1.9	2.0	2.0	2.9	2.5
Total supplementary medical insurance (SMI)	2.2	11.2	44.0	66.6	74.1	77.6	82.3	90.7	101.4
SMI payments to managed care organizations3	0.0	0.2	2.8	6.6	11.0	15.3	17.7	18.4	17.6
SMI payments for fee-for-service utilization6	2.2	11.0	41.2	60.0	63.2	62.3	64.6	72.3	83.8
Physician/supplies7	1.8	8.2	29.6	- - -	- - -	- - -	- - -	- - -	- - -
Outpatient hospital8	0.1	1.9	8.5	- - -	- - -	- - -	- - -	- - -	- - -
Independent laboratory9	0.0	0.1	1.5	- - -	- - -	- - -	- - -	- - -	- - -
Physician fee schedule	- - -	- - -	- - -	31.7	31.9	32.4	33.4	37.0	42.0
Durable medical equipment	- - -	- - -	- - -	3.7	4.2	4.0	4.3	4.7	5.4
Laboratory10	- - -	- - -	- - -	4.3	3.9	3.6	3.8	4.0	4.5
Other11	- - -	- - -	- - -	9.9	12.2	12.3	12.2	13.7	16.9
Hospital12	- - -	- - -	- - -	8.7	9.4	8.7	8.8	8.5	11.9
Home health agency	0.0	0.2	0.1	0.2	0.2	0.2	1.2	4.4	4.3
Home health agency transfer4	- - -	- - -	- - -	- - -	- - -	−0.5	−0.6	−1.7	−3.1
Administrative expenses5	0.2	0.6	1.5	1.6	1.4	1.5	1.6	1.8	1.7
	Percent distribution of expenditures
Total hospital insurance (HI)	100.0	100.0	100.0	100.0	100.0	100.0	100.0	100.0	100.0
HI payments to managed care organizations3	- - -	0.0	4.0	5.7	11.7	14.0	16.0	16.3	14.5
HI payments for fee-for-service utilization	100.0	100.0	96.0	94.3	88.2	86.0	84.1	83.7	85.5
Inpatient hospital	90.6	94.1	84.9	70.0	63.9	64.4	66.2	66.6	66.7
Skilled nursing facility	3.8	1.6	3.7	7.8	9.0	9.6	8.3	8.3	9.3
Home health agency	1.9	2.0	5.5	13.8	12.5	8.5	5.5	3.0	2.9
Home health agency transfer4	- - -	- - -	- - -	- - -	- - -	0.4	0.5	1.3	2.2
Hospice	- - -	- - -	0.4	1.6	1.5	1.6	2.0	2.3	2.6
Administrative expenses5	3.8	2.0	1.3	1.2	1.4	1.5	1.5	2.2	1.7

Under the Balanced Budget Act of 1997 (PL 105-33), Medicare hospice benefits are divided into three benefit periods:

• An initial 90-day period.
• A subsequent 90-day period.
• An unlimited number of subsequent 60-day periods, based on a patient's satisfying the program eligibility requirements.

At the start of each period, the Medicare patient must be recertified as terminally ill. After the patient's death, the patient's family receives up to 13 months of bereavement service.

In 2001 there were 2,265 Medicare-certified hospices, a substantial increase from 31 hospices in 1984. This growth was stimulated in part by increased reimbursement rates established by Congress in 1989. Of the 2,265 hospices, 690 were with home health agencies (HHA), 552 were affiliated with hospitals, 20 with skilled nursing facilities (SNF), and 1,003 were freestanding hospices. (See Table 9.5.) Medicare currently covers slightly more than 70 percent of hospice cost.

Terminally ill Medicare patients who stayed in a hospice incurred less Medicare cost than those who stayed in a hospital or skilled nursing facility. In 1998 a one-day stay in a hospice cost Medicare $113, compared with $482 for a skilled nursing facility and $2,177 for a hospital. (See Table 9.6.)

The Hospice Association of America (HAA) contends that terminally ill patients often wait too long to enter hospice care. The HAA believes that the difficulty of predicting when death may occur could account for part of the delay, along with the reticence of caregivers, patients, and family to accept a terminal prognosis.

While terminal care is often associated with hospice, the hospice Medicare benefit represents a small proportion of the total Medicare dollars spent. In 2001 only

TABLE 9.3
Medicare enrollees and expenditures, by type of service, selected years 1970–2001
[Data are compiled from various sources by the Centers for Medicare & Medicaid Services]

Type of service	1970	1980	1990	1995	1997	1998	1999	2000	20011
	Percent distribution of expenditures
Total supplementary medical insurance (SMI)	100.0	100.0	100.0	100.0	100.0	100.0	100.0	100.0	100.0
SMI payments to managed care organizations3	0.0	1.8	6.4	9.9	14.8	19.7	21.5	20.3	17.4
SMI payments for fee-for-service utilization6	100.0	98.2	93.6	90.1	85.3	80.3	78.5	79.7	82.6
Physician/supplies7	81.8	73.2	67.3	- - -	- - -	- - -	- - -	- - -	- - -
Outpatient hospital8	4.5	17.0	19.3	- - -	- - -	- - -	- - -	- - -	- - -
Independent laboratory9	0.0	0.9	3.4	- - -	- - -	- - -	- - -	- - -	- - -
Physician fee schedule	- - -	- - -	- - -	47.6	43.0	41.8	40.6	40.8	41.4
Durable medical equipment	- - -	- - -	- - -	5.6	5.7	5.2	5.2	5.2	5.3
Laboratory10	- - -	- - -	- - -	6.5	5.3	4.6	4.6	4.4	4.4
Other11	- - -	- - -	- - -	14.9	16.5	15.9	14.8	15.1	16.7
Hospital12	- - -	- - -	- - -	13.0	12.7	11.2	10.7	9.4	11.7
Home health agency	0.0	1.8	0.2	0.3	0.3	0.3	1.5	4.9	4.2
Home health agency transfer4	- - -	- - -	- - -	- - -	- - -	−0.6	−0.7	−1.9	−3.1
Administrative expenses5	9.1	5.4	3.4	2.4	1.9	1.9	1.9	2.0	1.7
- - -Data not available.
0.0 Quantity greater than 0 but less than 0.05.
1Preliminary figures.
2Average number enrolled in the hospital insurance (HI) and/or supplementary medical insurance (SMI) programs for the period.
3Medicare-approved managed care organizations.
4Reflects annual home health HI to SMI transfer amounts for 1998 and later.
5Includes research, costs of experiments and demonstration projects, and peer review activity.
6Type of service reporting categories for fee-for-service reimbursement differ before and after 1991.
7Includes payment for physicians, practitioners, durable medical equipment, and all suppliers other than Independent laboratory, which is shown separately through 1990.Beginning in 1991, those physician services subject to the Physician fee schedule are so broken out. Payments for laboratory services paid under the Laboratory fee schedule and performed in a physician office are included under "Laboratory" beginning in 1991. Payments for durable medical equipment are broken out and so labeled beginning in 1991. The remaining services from the "Physician" category are included in "Other".
8Includes payments for hospital outpatient department services, for skilled nursing facility outpatient services, for Part B services received as an inpatient in a hospital or skilled nursing facility setting, and for other types of outpatient facilities. Beginning 1991, payments for hospital outpatient department services, except for "laboratory" services, are listed under "Hospital." Hospital outpatient laboratory services are included in the "Laboratory" line.
9Beginning in 1991 those independent laboratory services that were paid under the Laboratory fee schedule (most of independent lab) are included in the "Laboratory" line; the remaining services are included in "Physician fee schedule and Other" lines.
10Payments for laboratory services paid under the Laboratory fee schedule performed in a physician office, independent lab, or in a hospital outpatient department.
11Includes payments for physician-administered drugs, free-standing ambulatory surgical left facility services; ambulance services; supplies; free-standing end-stage renal disease(ESRD) dialysis facility services; rural health clinics; outpatient rehabilitation facilities; psychiatric hospitals; and federally qualified health lefts.
12Includes the hospital facility costs for Medicare Part B services that are predominantly in the outpatient department, with the exception of hospital outpatient laboratory services, which are included on the "Laboratory" line. The physician reimbursement is included on the "Physician fee schedule" line. Notes: Table includes service disbursements as of January 2003 for Medicare enrollees residing in Puerto Rico, Virgin Islands, Guam, other outlying areas, foreign countries, andunknown residence. Totals do not necessarily equal the sum of rounded components. Some numbers in this table have been revised and differ from previous editions of Health, United States. Data for additional years are available.
SOURCE: "Table 134 (Page 1 of 2). Medicare Enrollees and Expenditures and Percent Distribution, according to Type of Service: United States and Other Areas, Selected Years 1970–2001," in Health, United States, 2003, Lefts for Disease Control and Prevention, National Left for Health Statistics, National Vital Statistics System, Hyattsville, MD, 2003

about 1.4 percent ($3.4 billion) of all Medicare benefit payments went to hospice care. The 2002 projected hospice spending was comparably small ($3.8 billion, or 1.5 percent of the projected $246.7 billion total Medicare expenditures). (See Table 9.7.)

Medicaid Hospice Benefits

Hospice services also comprise a small portion of Medicaid reimbursements. In 1999 Medicaid reimbursements comprised only 0.2 percent ($345.2 million) of the $153.3 billion total expenditures. (See Table 9.8.) Providing hospice care under Medicaid is optional for each state. In 2002, 45 states and Washington, D.C., offered hospice benefits. (See Table 9.9.)