Functional Impairment a Key Factor in High Medical Spending

Identifying the Key Spending Drivers in Medicare Population


The discourse on major drivers of high medical spending for American seniors often focuses on the role of chronic conditions but overlooks a more significant factor: functional impairment (FI). Seniors with FI require assistance with the activities of daily living (eating, bathing, toileting, etc.), and often spend large sums out-of-pocket for in-home care services or specialized housing.

Less well known is the fact that seniors with FI also have much higher medical costs, as can be seen in data on Medicare spending. This has important implications for any organization providing services to or taking risk for this population.



Our research shows that older adults with chronic conditions and FI have much greater medical spending than those with chronic conditions alone. In 2012, Medicare spent approximately $17,961 per capita on older adults with both chronic conditions and FI compared to about $7,228 on those with chronic conditions but no FI.



Health plans and other risk-bearing organizations should recognize that functional and cognitive impairment affects medical spending among their highest-cost members and should meet members’ non-medical needs as part of their core strategy for managing overall benefit costs.

Policymakers should encourage these organizations to more effectively serve Medicare beneficiaries with functional or cognitive impairment by giving them more flexibility to meet individuals’ non-medical needs and using quality measures to hold risk-bearing organizations accountable for outcomes.

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