Potential Medicare Savings through Prevention and Risk Reduction

Abstract

Medicare is challenged to maintain solvency as enrollment climbs because of the aging baby boomers and costs increase as a result of the substantial disease burden present among seniors. In the present study, an actuarial model was developed to determine the present cost (2008) of Medicare-covered benefits for elderly individuals, and to test the impact on cost of health risk reduction that may be possible through population health and wellness interventions. In the model, beneficiaries were categorized by risk according to health status using 3 different indices, and baseline per month and lifetime expenditures were estimated. Changes in morbidity were tested via scenarios of modified transition rates between the risk categories that might result from population health and wellness initiatives, including increases in the proportion of low-risk individuals entering Medicare, and delayed or reduced rates of upward risk transitions. The model showed that the discounted total lifetime cost of Medicare benefits was $174,018 per person, from age 65 until death. Each risk-reduction scenario was associated with both annual and lifetime cost savings, which accounted for increased longevity associated with decreased risk profiles. In conclusion, a model has been developed that can predict the impact on Medicare costs of varying levels of risk reduction in the senior population and, therefore, the potential financial benefit of population health and wellness policy initiatives directed at improving health prior to and during the years of Medicare. The model shows that there are substantial opportunities for savings through modest improvements to the health of the Medicare population.