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Modeling Health Care Spending Growth of Older Adults

Objective: To forecast out-of-pocket health care spending among older adults. Long-term forecasts allow policy makers to explore potential impacts of policy scenarios, but existing microsimulations do not incorporate details of supplemental insurance coverage and income effects on health care spending.

Data Sources: Dynamic microsimulation calibrated to survey and administrative data.

Study Design: We augment Urban Institute's Dynamic Simulation of Income Model (DYNASIM) with modules that incorporate demand responses and economic equilibria, with dynamics driven by exogenous technological change. A lengthy technical appendix provides details of the microsimulation model and economic assumptions for readers interested in applying these techniques.

Principal Findings: The model projects total out-of-pocket spending (point of care plus premiums) as a share of income for adults aged 65 and older. People with lower incomes and poor health fare worse, despite protections of Medicaid. Spending rises 40 percent from 2012 to 2035 (from 10 to 14 percent of income) for the median beneficiary, but it increases from 5 to 25 percent of income for low-income beneficiaries and from 23 to 29 percent for the near poor who are in fair/poor health.

Conclusions: Despite Medicare coverage, near-poor seniors will face out-of-pocket spending that would render them, in practical terms, underinsured.

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