Poverty & Public Policy, Vol. 7, No.

1, 2015

Aging and Health Care Costs: Narrative Versus Reality

David E. Kingsley
Health Policy and Management, Kansas University Medical Center, Kansas City, KS

This study documents the widespread belief among the public, “pundits,“ and policymakers that
health care inflation in the United States is heavily influenced by longevity. It demonstrates the
error of that belief. It points out that health care experts recognize that, although health care costs
for the elderly are high, the aging of the population is an insignificant factor in health care cost
inflation. Nevertheless, existing literature tends to ignore important influences on cost, such as
poverty, lack of access, lifestyle issues, and matters of social justice. It also ignores the differences
among numerous subgroups of patients. Ignoring these factors and concentrating on an aging
society as a major cause of health care inflation distracts policymakers’ attention from the true
causes and leads to unjustified calls for benefit reductions in Medicare. As part of this study, the
author includes analyses of hospital discharge data that have not been published previously.
KEY WORDS: aging, health care, inflation, poverty

Introduction

According to a generally accepted narrative, the 65þ population in the United

States is, and will continue to be, the dominant driving force of health care
inflation (Canadian Foundation for Healthcare Improvement, 2011; Reinhardt,
2003).1 In addition to expression of this conventional wisdom in the media
(Calmes, 2013),2 it is believed by politicians and even health care professionals.3
Because of the widespread view that a growing elderly population will drive up
health care costs and cause an ever-widening federal deficit, serious Medicare
benefit reductions have been proposed by members of Congress in both parties as
well as by President Obama.
A perceived large impact of the modest growth in the elderly population
between now and 2029 on the federal budget continues to be an integral part of
the conversation regarding fiscal policy (Bowles & Simpson, 2010).4 For that
reason, it is important to test assumptions regarding the elderly and health care.
Benefit reductions proposed by policymakers will place a hardship on a large
proportion of Medicare beneficiaries.5
As Jean-Jacques Rousseau told us, “in every assumption that leads to injustice
two parties are always involved: the person making the claim, and all the others

3
1944-2858 # 2015 Policy Studies Organization.
Published by Wiley Periodicals, Inc., 350 Main Street, Malden, MA 02148, USA, and 9600 Garsington Road, Oxford, OX4 2DQ.
4 Poverty & Public Policy, 7:1

believing him“ (Stangneth, 2014).6 Like hypotheses, assumptions must be testable

if they have a claim to respectability. Furthermore, a testable assumption is one
that can be falsified (Popper, 1980).7 Confirmation of the belief that the elderly
are causing high (inflationary) health care costs can be achieved by anecdotes and
individual cases, but that would not be a valid and scientific methodology.8
Conversely, if age is purported to be a causal factor in U.S. health care inflation,
examples of instances where this is not true falsify related hypotheses and
assumptions.
Several means are available to test the assumption that growth of the 65þ
population is responsible for an inflationary spiral. One method is to compare the
United States with other countries with elderly populations as large or larger.
There should be no reason to believe that age per se is a driver of inflation in the
United States if that is not the case in other countries.
The initial wave of baby boomers reached 65 in 2011. The number of
Medicare beneficiaries has been steadily growing since that time (Board of
Trustees, 2014).9 Hence, a second method of testing assumptions regarding health
care costs and the elderly is to analyze several years of Medicare expenditures in
view of growth in the beneficiary population and management controls and
attempts to reduce costs without reducing benefits. Maintenance of expenditures
at a level below traditional levels of inflation would be strong evidence for
falsification of the assumption that a growing elderly population will inflate
health care costs.
Analysis of hospital discharge costs by five-year age categories rather than by
the dichotomous 65þ and under 65 comparison is critical for evaluating subtexts
in the overall narrative, such as the belief that an increase in longevity will
increase health care because more elderly people will need increasingly costly
medical services in the “old-old“ age categories. It is an assumption of the public,
professionals, and politicians that health costs increase proportionately with age.
The purpose of this article is to report tests of the assumption that a growing
elderly population will be responsible for future inflation in health care and be
a major cause of future budget deficits and debt. Comparison of cross-cultural
data, review of Medicare expenditures, and analysis of hospital discharge data
triangulate three sources of information indicating the impact of the elderly
population on health care inflation.
Factors other than a growing elderly population should be considered in the
determination of the validity of the elderly-caused inflationary spiral narrative. If
not an aging population, what, logically and realistically, should be considered as
factors in health care inflation? In this article, poverty and medical advancements
will be discussed based on prior reported research and the analysis of hospital
discharge data. It seems intuitive that these are important variables, but they are
not usually included in conversations regarding health care and federal deficits.
The author stipulates that the elderly consume more health care than younger
cohorts. Indeed, the 65þ population comprises 13 percent of the total U.S.
population but utilizes 30 percent of health care services (Mirel & Carper, 2014).10
It has always been the case that chronic illnesses are most likely manifested as the
Kingsley: Aging and Health Care Costs 5

late and most costly stages of old age are approached. The point being made in
this article concerns health care cost inflation, which has been historically much
higher than inflation in general. Furthermore, even fairly healthy people will
require an increasing amount of health services as they approach death in old
age.
No doubt, health care is far too costly in the United States. As stated above,
those costs have been increasing at a rate much faster than overall increases in
the Consumer Price Index (Conover, 2012).11
However, we need to first eliminate erroneous beliefs about the cause of these
increases and then turn our attention to the real causes. Analyses of hospital
discharge data presented below have not been derived and presented before in
any other scholarly publication. These analyses add to the science in the field of
health policy research and should lead to a more objective view of how “big
ticket“ items involving advanced technologies and the most expensive treatments,
such as intensive care units (ICUs), are utilized by various age groups.
The techniques and methods by which analyses presented below are carried
out are also innovative approaches to acute care research. The analyses are derived
from a data file containing nearly eight million cases, which is a 20 percent sample
of all hospital discharges in a single year (2012) (Healthcare Cost and Utilization
Project, 2012).12 Although the author has conducted logistic regression models
and other analyses from which hypotheses can be tested for statistical significance,
the “big data“ approach presented in this article avoids fallacies due to over-
aggregation of groups included in comparisons. As in much epidemiological
research, this approach to acute care research establishes enduring patterns (Davis,
2007)13 and encourages further “drilling into“ the data and refining analyses.
The big data approach mostly entails meaningful, simple descriptive statistics
that are easily communicated to interested professionals as well as to the public.
Econometric models are fraught with specification error and other fallacies.
Furthermore, attempts to communicate coefficients and their standard errors and
statistical significance to professionals and others untrained in statistics can lead
to misunderstanding as well as deference to analysts who may or may not have
utilized an appropriate technique or reached a valid finding.
Finally, in addition to analyses and findings derived from a large hospital
data file, perceptions pertaining to the elderly and health care costs are critically
evaluated through other sources, such as the medical literature and knowledge
disseminated through government agencies and other institutions involved in
relevant research. Bringing these sources of knowledge together encourages a
view of the impact of age on the health care system that has not heretofore been
part of the discussion regarding past, present, and future health care costs.

Cross-Cultural Perspectives

Cross-cultural comparison of per capita health care spending is one method

of examining the belief that a growing elderly population is a major factor in
health care inflation. Table 1 displays per capita health care expenditures for a
6 Poverty & Public Policy, 7:1

Table 1. Per Capita Health Care Expenditures: Selected Members of the OECD

Total Expenditure on Health per Capita at Current Prices and PPPs

Country 2006 2007 2008 2009 2010 2011 2012

Canada 3679 3843 3998 4297 4426 4503 4602

Finland 2768 2905 3163 3290 3289 3455 3559
France 3411 3564 3726 3954 4029 4192 4288
Germany 3572 3720 3973 4227 4427 4610 4811
Italy 2727 2765 3018 3115 3157 3202 3209
Japan 2608 2747 2891 3049 3237 3458 3649
Netherlands 4086 4378 4717 4916 5051 5219
Norway 4616 4877 5246 5350 5440 5746 6140
Sweden 3198 3427 3656 3738 3747 3964 4106
Switzerland 4256 4564 4933 5205 5292 5671 6089
United Kingdom 2936 3018 3192 3389 3210 3212 3289
United States 7123 7504 7786 8015 8244 8483 8745

selected group of members of the Organization for Economic Development and

Cooperation (OECD, 2014a).14 All of the 35 members of the OECD have much
lower per capita health care expenditures than the United States. Many of them
have a much larger proportion of 65þ citizens plus a greater life expectancy
(OECD, 2014b).15
In Japan, which has one of the lowest per capita expenditures for health care,
25 percent of the population was 65þ in 2013 (World Bank, 2014).16 In the United
States, the 65þ population has been increasing slowly from 10 percent in 1990 to
13 percent at the present time. The U.S. elderly subpopulation (65 þ) is expected
to increase to approximately 21 percent of the total population by 2021 and then
stabilize at that rate and should decline somewhat after 2030 due to an increase in
the child population and a decline in the 65þ cohort (U.S. Census Bureau).17
Not only is the health care system accessible for all citizens in Japan, but they
also use it. The Japanese people see a physician on average 12 times per year
versus 4 times on average in the United States (Commonwealth Fund, 2014).18
Accessibility is indeed an important factor in population health (Ikeda et al., 2011;
Ikegami et al., 2011).19 Furthermore, life expectancy is an indicator of the health
of a country’s population.
The Japanese have achieved the highest level of life expectancy in the world.
The average life expectancy for the Japanese was age 82.7 in 2008. The United
States, with a life expectancy of 77.9 in 2008, was below the OECD average of
79.3. Life expectancy increased by an average of six years among OECD countries
between 1983 and 2008 but had increased only three years in the United States in
the same time span (OECD, 2014c).20
Accessibility is a major difference between the United States and all countries
included in Table 1. With the exception of Switzerland and the Netherlands, the
12 countries shown have health care systems characterized by single-payer and
universal coverage (the two excepted countries have universal coverage, but
insurance is purchased in an exchange much like the exchanges set up under the
Affordable Care Act).
Kingsley: Aging and Health Care Costs 7

In most of the countries displayed, the proportion of the population

considered elderly is as large as or larger than in the United States. In almost all
of the OECD, fertility rates are lower than in the United States. Legal immigration
into the United States of one million people per year plus a relatively larger
proportion of females of child-bearing age will keep the birthrate at a level
enough level to increase the U.S. population from the current 220 million to
around 400 million by 2050 (OECD, 2014d).21

Medicare Expenditures

As a component of the larger “silver tsunami“ narrative, the ongoing sub-

narrative of elderly hoards descending upon the Medicare system and rendering
it unsustainable has been proven false by recent and current cost reductions in
the Medicare system. The last few Medicare Trustees’ reports (2010–2013) provide
ample evidence of a low rate of inflation in Medicare expenditures even as the
65þ population continues to increase (Board of Trustees, 2011, 2012, 2013, 2014).22
As Table 2 indicates, total Medicare expenditures increased from $522.8
billion in 2010 to $592.9 billion in 2013—a $60.1 billion or 11.5 percent increase.
Therefore, the average increase over the four years was 2.9 percent.
Physician services and outpatient services (Part B) increased at a more rapid
rate than hospitalization (Part A). This can be explained by Center for Medicaid
Services (CMS) efforts to “bend the cost curve“ by relying less on hospitalization
and more on outpatient services, hospice, and home health care.
The increases shown in Table 2 should be considered in the context of an
increasing enrollment in the Medicare program. Between the beginning of
2010 and the end of 2013, enrollment increased from 43.5 million to 52.3 million
(a 10 percent increase). Contrary to what the public and press generally thinks, a
sizable proportion of beneficiaries of Medicare are under the age of 65. The 65þ
enrollment increased from 39.6 million in 2010 to 43.5 million in 2013—a 4 percent
increase. The disabled enrollment grew from 7.9 million to 8.8 million—an
11.4 percent increase. Hence, 17 percent of Medicare enrollment is an under 65
disability group, which is growing more rapidly than the 65þ segment.
Given this enrollment increase, it is noticeable that the average enrollee
benefit per year increased an extraordinarily small annual average of .325 percent
per year from 2010 to 2013 ($11,762–$11,910). Due to 165 cost reduction measures
in the Medicare program and other cost reduction measures by the Obama

Table 2. Medicare Expenditure Increases, 2010–2013

MEDICARE 2010 MEDICARE 2013 2010–2013 % Chg. Avg. % Chg.

Total 522.8 582.9 11.5 2.9

Part A 247.9 261.9 5.6 1.4
Part B 212.9 247.1 16.0 4.0
Part C 62.0 69.7 12.4 3.1
8 Poverty & Public Policy, 7:1

administration as part of the Affordable Care Act, CMS is maintaining an

extraordinarily low inflation rate (Board of Trustees, 2014).23
Historically, the cost of health care has risen at a much higher rate than
overall inflation (Conover, 2012).24 The Bureau of Labor Statistics Consumer Price
Index Detailed Report for January 201425 indicates that hospital inpatient services
increased 5.3 percent between January 2013 and January 2014 (Bureau of Labor
Statistics, 2014). In the same period, Part A expenditures actually decreased from
$262.9 billion to $261.9 billion.
An increase in life expectancy is often cited as a looming problem for
Medicare costs. It is assumed that a longer life span will necessarily result in
greater health care expenditures. This is flawed reasoning resulting from lack of
knowledge regarding the impact of an increasing life expectancy on health care
costs and inflation.
Indeed, the opposite is true. As Lubitz et al.26 have shown, those long-lived
elderly cohorts burden the health care system less than individuals who die fairly
young in their 40s, 50s, 60s, and even 70s. An individual who dies at age 85 or 90
will generally have, on average, lower aggregated expenditures at death than
individuals dying in their 60s (Lubitz, Beebe, & Baker, 1995).
One can say that increasing life expectancy lowers health care costs. As in
Japan, where life expectancy exceeds all other advanced industrialized countries
while per capita expenditures are the lowest among economic peer countries,
healthier people burden the health care system less fiscally—even when utiliza-
tion is very high. Keeping people healthy and increasing life expectancy is a cost
reduction factor.

The Influence of Technology

As stated above, the 65þ population will increase in size over the next
10 years—from 13 percent to 21 percent. Health policy and management
researchers are in accord that an aging population has a minimal impact on
health care inflation (Halpert & Zimmerman, 1986; Kramer, 1995; Lubitz et al.,
2003; McGrail, 2011; Morgan & Cunningham, 2011; Reinhardt, 2003).27 If the
growing 65þ population is not a major factor, what are the major factors
increasing health care costs in the United States?
After reviewing the body of research regarding health care inflation, the
Congressional Budget Office (CBO) eliminated aging as a causal factor and
concluded that “although elderly people generally incur higher costs for health
care than younger people and much of the spending on health care goes toward
treating the elderly, the contribution of an aging population to the growth in that
spending over the long term is smaller than is commonly perceived“ (Congressio-
nal Budget Office, 2008).28
The CBO report is correct in asserting that an aging population is an
insignificant factor in health care inflation but is incorrect in assuming that elderly
people generally incur higher costs for health care than younger people. As
will be demonstrated below, some of the younger elderly between ages 65 and
Kingsley: Aging and Health Care Costs 9

Table 3. Congressional Budget Office Summary of Factors Driving Health Care Inflation

Estimated Contributions of Selected Factors to Growth in Real Health Care Spending per Capita,
1940–1990 (percent)

Smith, Heffler,
and Freeland Cutler Newhouse
(2008) (1995) (1993)

Aging of the Population 2 2 2a

Changes in Third-Party Payment 10 13 10b
Personal Income Growth 11–18 5 <23
Prices in the Health Care Sector 11–22 19 NE
Administrative Costs 3–10 13 NE
Defensive Medicine and Supplier-Induced Demand 0 NE 0
Technology-Related Changes in Medical Practice 38–62 49 >65

Sources: Congressional Budget Office based on Sheila D. Smith, Stephen K. Heffler, and
Mark S. Freeland, “The Impact of Technological Change on Health Care Cost Increases: An
Evaluation of the Literature (working paper, 2000); David M. Cutler,” Technology, Health
Costs, and the NIH (paper prepared for the National Institutes of Health Economics
Roundtable on Biomedical Research, September 1995); and Joseph P. Newhouse, “Medical
Care Costs: How Much Welfare Loss?” Journal of Economic Perspectives, Vol. 6, No. 3
(Summer 1992), pp. 3–22. Note: Amounts in the table represent the estimated percentage
share of long-term growth that each factor accounts for. NE ¼ not estimated. aRepresents
data for 1950–1987. bRepresents data for 1950–1980.

70 incur unusually large acute care costs. However, after age 70, health care
costs decline. They decline rather precipitously after age 80 (which is considered
“old-old“).
Nevertheless, the report cited three studies that allocated growth to various
factors. Table 3 below is a reproduction of the data presented by the CBO.29 It is
also interesting that factors such as poverty, lack of access to health care, and
other social justice issues were ignored in all three studies.
Authors of three studies—recognized as the seminal studies of factors
influencing growth in health care spending per capita—were in agreement
regarding the influence of an aging population. Only 2 percent of the growth, in
the opinion of these researchers, could be attributed to a growing 65þ population.
However, other factors not included in the list of influences on health care
costs could be metaphorically called “800 pound gorillas in the room.“ Whether
in the “silver tsunami“ narrative propagated by the media, bureaucrats, and
politicians or in the CBO report, not much attention has been paid to poverty,
inaccessibility to treatment, lifestyle (20 percent of the U.S. adult population
smokes), or rent seeking by the medical-industrial complex30 (through collusion
between government and privatization/corporatization of health care; Relman,
1980).
The CBO report summarized in Table 3 determined that “technology-related
changes“ had the greatest impact on growth in per capita health care expendi-
tures. Medical technology, it must be said, has ameliorated an untold amount of
suffering and extended life for many patients with heart disease, cancer, diabetes,
10 Poverty & Public Policy, 7:1

and many other areas of medicine. But these costly procedures are influenced by
preventable illnesses. Poverty and other factors (that could be addressed through
public health programs and preventative medicine) interact synergistically with
the technology available.
No doubt, amazing advances in heart disease treatment and surgery, such as
transplants and implants (e.g., the left ventricle assist device, or LVAD), neonatal
intensive care, and a host of other life-saving procedures, are costly in and of
themselves. Nevertheless, these factors interact with the poverty, inaccessibility,
lifestyles, and oligopolistic practices in the health care industry. Furthermore, the
health care system is not the sum of its parts. Poverty and resulting diseases
interact synergistically with expensive treatments and technologies. Accessibility
to preventive services and lack of other health needs such as food result in
diseases that reach a late and expensive stage.
Smoking, combined with a widespread high-fat (of the dangerous type), low-
fiber diet, obesity, and a sedentary lifestyle—all of which are endemic not only in
poverty but in society as a whole—are disease related and often do not become
clinically significant until late middle age. Also, increasing levels of poverty result
in the kind of high infant mortality rate seen in the United States.31 The
intractable rates of preterm and low birth weight babies cause extremely high
acute care costs. As will be discussed below, “cost bubbles” of extremely high-
cost hospital cases are manifested in infants (0–4) and in the early elderly years
(60–69).

Health Cost and Utilization Data:32 Focus on High-Impact Illness and Age

Focus on an aging society as the major or even a major cause of overall health
care inflation distracts policymakers and the public from the real major causes of
high U.S. per capita health care expenditures. It is valid to examine specific ages
at which extremely high costs are most likely to occur and determine underlying
causes of those costs (Campbell & Campbell, 2006; Ornish, Scherwitz, & Billings,
1998).
This approach is different from the invalid approach of misunderstanding
and misusing aggregated averages by comparing the average health care costs
for the 65þ and under 65 populations (this is shown to be the case below). An
alternative approach, using a large hospital discharge dataset available from the
Healthcare Cost and Utilization Project (2012), will be demonstrated below.
By buying into the belief that aging is the cause of exorbitant health care
inflation, policymakers have been moved to propose reduction of defined benefits
as a solution to lowering the cost of the Medicare program.33 This will not only
cause higher future costs but will also cause needless suffering.
It is not surprising that one would be misled into believing that the elderly in
general have higher acute care costs in the U.S. health care system and that those
costs will rise linearly from the youngest to the oldest age categories. When
average costs are dichotomized by the 65þ and under 65 populations, the 65þ
average cost is $27,692 while the under 65 average charges were $15,910.34
Kingsley: Aging and Health Care Costs 11

Table 4. Average Hospital Charges by Five-Year Age Categories (2012)

Age Category Average Charge %N

Less than 5 $5,007 12.9

5–9 16,147 .8
10–14 19,107 .9
15–19 15,673 2.4
20–24 14,236 4.6
25–29 14,455 5.3
30–34 15,932 5.5
35–39 18,800 4.1
40–44 22,379 4.0
45–49 24,563 4.9
50–54 26,667 6.3
55–59 28,698 6.7
60–64 29,983 6.9
65–69 30,641 7.3
70–74 29,644 6.7
75–79 28,644 6.5
80–84 26,903 6.2
85–89 24,969 4.9
90–94 22,139 3.2
Total 19,921 100.0

This is an invalid approach to analysis of hospital data by age. It misses

subpopulations within larger populations and influences erroneous beliefs about
the larger population. The entire 65þ population average is distorted by the effect
of the “early elderly ages”—specifically, the ages from 60 through 69. As Table 4
illustrates, the average charges and five-year age categories relationship is
curvilinear, with the maxima at the 65–69 age category.
Indeed, the decade of ages between 60 and 70 is the time at which the natural
history of heart disease is most likely to reach a crisis stage and entail extreme
hospital charges. Furthermore, costly neonatal intensive care cases constitute an
age-related cost bubble. Medical technologies for treating preterm, very low birth
weight babies have become truly marvelous but extremely costly—something the
United States can afford and thankfully something for which funds are available.
As anthropologist and nurse Sandra Lane has noted: “Only twenty years ago
babies under 750 g—less than two pounds—rarely survived.” But in her study of
Syracuse, New York, she found that “during 2000–2001, among babies of twenty-
three weeks or greater gestation and less than 750 g, nearly three quarters left the
NICU and returned home with their parents” (Lane, 2008, p. 65).35
Analyses will be presented below to demonstrate the relationship between
two 5-year age categories—0 through 4 and 65 through 69—and extremely high
charges. As opposed to an aging society, the interaction between poverty and
advanced medical technology appears to be causally related (a hypothesis that
needs further testing). In this regard, atherosclerosis and the natural history of
disease appear to be a factor in the high costs of heart disease. Although heart
disease is the leading cause of death, it is a preventable disease (Esselstyn,
12 Poverty & Public Policy, 7:1

2007).36 These are two examples of the many costly diseases and illnesses treated
in acute care settings. Nevertheless, they account for a major portion of health
care expenditures and serve to illustrate why health care inflation has very little
to do with the past, current, and future growth of the 65þ population.
When lifestyles, poverty, and access to health care interact over a lifetime, the
individual health trajectory (i.e., natural history of diseases) will often tend to be
hidden and not clinically significant until at least middle age and then most likely
reach a crisis stage soon before age 65 or soon thereafter. Atherosclerosis begins
in an early age. Autopsies on U.S. soldiers killed in the Korean War revealed
atherosclerosis in soldiers in their early 20s. This was a revelation for American
medicine (Cheng, 2001; McNamara et al., 1971; Strong, 1986).37 Even more
astonishing, the Bogalusa studies revealed atherosclerosis in infants (Berenson,
2001; Millonig, Malcom, & Wick, 2002; Paul et al., 2005).38
Although the average hospital charge for the 0–4 age category ($5,005 in 2012)
is the lowest among all 19 five-year categories between age 0 and 95, this is a
misleading statistic. Babies comprise 13 percent of all patients. Generally, charges
for normal births are comparatively quite low. However, the large number of low
hospital charges for babies masks the comparative large number of extremely
high charges in this age group.
The masking of high infant charges through a low overall average aside, the
curvilinear nature of age and hospital charges can be seen in Figure 1. The data
for several years from 2003 through 2012 validate the pattern. Each sample in
each year exhibits the same curve, with a maxima in the mid to late 60s. This

Figure 1. Average Cost by Five-Year Age Groups for Selected Years Between 2003 and 2012.
Kingsley: Aging and Health Care Costs 13

well-validated pattern falsifies the widespread belief that hospital costs rise
linearly and consistently throughout the life span.
Looking at exorbitantly high charges is critical. In accordance with the “Pareto
Principle,“39 a small number of cases result in most of the overall health care
costs. “Just five percent of the U.S. population—those with the most complex and
extensive medical conditions—accounts for almost half (49 percent) of total U.S.
health care spending, and 20 percent of the population accounts for 80 percent
of total spending“ (Erlich, Kofke-Egger, & Udow-Phillips, 2010).40 An analysis
through drilling into subgroups where high charges are to be found contributes
to understanding the causes of these high costs. An examination of diagnoses and
procedures as well as other factors within these high-cost subgroups provides a
more meaningful insight into causes and potential strategies for cost reductions.
Averages are generally not very meaningful without such further drilling down
into the data.
Table 5 lists the average charges by five-year categories for patients with
charges two standard deviations above the mean (top 2.5 percent in each age
category),41 charges equal to or greater than $500,000 in each age category, and
charges equal to or greater than $1,000,000 in each age category. The age categories
with the greatest proportion of charges two standard deviations above the mean
are in the 60–75 age categories, with the next largest in the 0–4 age category.
However, the pattern changes when charges are at or above $500,000 and at or

Table 5. Extremely High Hospital Charges by Five-Year Age Categories (2012)

Charges $174,933 Charges $500,000 Charges $1,000,000

or Greatera or Greater or Greater

Age Categories Mean %N Mean %N Mean %N

Less than 5 $375,269 9.2 $861,560 21.5 $1,531,410 31.0

5–9 323,450 .7 859,667 1.1 1,602,859 1.7
10–14 299,499 1.0 822,579 1.2 1,600,517 1.5
15–19 307,890 1.6 819,090 2.2 1,518,297 2.9
20–24 308,106 1.8 794,525 2.3 1,586,435 2.6
25–29 302,156 1.9 791,512 2.4 1,471,510 2.8
30–34 295,463 2.4 781,992 2.8 1,418,485 3.0
35–39 289,092 2.6 775,296 2.6 1,500,785 2.5
40–44 287,305 3.6 786,462 3.6 1,444,538 4.0
45–49 285,529 5.3 744,598 5.3 1,393,459 4.4
50–54 282,265 7.9 753,361 7.2 1,430,450 6.7
55–59 285,130 9.5 758,046 9.1 1,425,738 8.3
60–64 283,906 10.5 742,516 9.8 1,452,505 7.7
65–69 274,718 11.2 727,231 8.8 1,386,509 7/1
70–74 273,566 9.6 721,653 7.1 1,390,953 5.5
75–79 269,305 8.5 724,328 5.6 1,401,845 4.2
80–84 265,800 6.8 704,188 4.3 1,453,522 2.4
85–89 262,446 4.0 701,236 2.3 1,320,736 1.4
90–94 253,242 1.6 727,231 .7 1,567,041 .5
TOTAL
a
Two standard deviations above the mean (highest 2.5 percent charges).
14 Poverty & Public Policy, 7:1

above $1,000,000: for the $500,000þ case, 21.5 percent are 0–4 with categories 55–59
and 64–69 (9.1 percent and 9.8 percent, respectively) the next two largest. For
charges of $1,000,000 or more, close to one-third (31 percent) are ages 0–4.
At the $1,000,000 charge level, the largest proportion of adult adult patients
are in the 55–59, 60–64, and 65–69 age categories, with 8.3 percent, 7.7 percent,
and 7.1 percent, respectively. The proportion of cases with $1,000,000þ charges
declines precipitously past the age of 70.
The type of third-party payer provides evidence for the connection between
extremely high charges for infants and poverty. Babies with charges of $174,933þ,
$500,000þ, and $1,000,000þ are disproportionately poor and Medicaid eligible,
with 55 percent of these high charges reimbursed by Medicaid. Among all U.S.
children, 20 percent are considered to be in poverty. However, 35 percent of
African American children and 33 percent of Hispanic American children, and
13 percent of European American children, are considered to be in poverty
(Henry J. Kaiser Family Foundation, 2013).42
For the children with charges two standard deviations above the mean or
$174,933, Medicaid was the payer for 42.8 percent of the European American
children, 74.3 percent of the African American children, 69.3 percent of Hispanic
American children, 38.4 percent of Asian American children, 69.4 percent of
Native American children, and 51.9 percent of children classified as “other“
(“other“ is a category with 7.6 percent of babies so classified as receiving Medicaid
assistance).
It is interesting to note that approximately the same percentages apply to
Medicaid as a payer in the $500,000 and $1,000,000 charges for infants (under
age 5). Although 13 percent of so-called “white“ children are considered to be in
a family with an income at or below poverty, nearly half (49.3 percent) of children
with a hospital charge two standard deviations above the mean of all hospital
charges are eligible for Medicaid.
In the case of patients in the pre-elderly and early-elderly age categories (ages
55–69), the high proportion of cardiovascular disease accounts for high average
charges at these ages—especially in the 65–69 age category. In all three high-
charge groups discussed thus far ($174,933, $500,000, and $1,000,000), approxi-
mately one-third of diagnoses and one-third of procedures are related to
cardiovascular diseases. Septicemia, the second most likely disease for these
patients with high charges, is the primary diagnosis for 10 percent of them. Other
most likely diagnoses are complication of implant, graft, or surgery (8 percent)
and respiratory failure (6 percent).
The ICD-9 includes hundreds of diagnoses (ICD9Data.com, 2014).43 That one-
third of patients with the highest charges have diagnoses related to heart and
vascular disease should be of great interest to health care economists and
policymakers. Following the rather recent innovation of open heart surgery in the
1950s, further innovations have been coming online with breathtaking rapidity.
Invention of the defibrillator, pacemaker, and the left ventricle assist device, along
with heart transplants, has resulted in an important, large, and lucrative
component of the privatized, for-profit health care system.
Kingsley: Aging and Health Care Costs 15

These costly procedures are most frequent at the age when heart disease has
advanced to a crisis stage. As stated earlier, they are in a stage of the natural
history of a disease when they become a crisis and treatment is a matter of life
and death. Considerable evidence exists that heart disease and diet are related in
many cases (Campbell & Campbell, 2006).44 However, physicians are not typically
reimbursed for counseling patients on a proper diet.
The poor are more likely to be denied access to health care prior to eligibility
for Medicare. It has been well established that having insurance reduces risks for
major heart disease (and other diseases). It has been estimated from a study done
in 24 hospitals that individuals without health insurance were 40 percent more
likely to “delay seeking care after experiencing symptoms later diagnosed as a
myocardial infarction (heart attack)” (Smolderen et al., 2003; Wolfe, 2011).45

Limitations

The author’s analyses in this article have been focused on hospital costs—that
subsystem of the health care system accounting for advanced medical procedures
and the largest expenditures. Furthermore, inflation rather than the overall cost
of health care has been the emphasis in testing the assumption that an aging
population will be a future driver of the same type of inflationary spiral
experienced in the United States in the past few decades.
Challenges of a larger elderly population in other segments of the health care
system cannot be ignored. More elderly will need long-term care. The prevalence
of Alzheimer’s disease and other forms of dementia will increase and will require
an increasing amount of costly care. The question is, how much will that add to
health care inflation? Long-term care is not as big a part of overall health
care spending as is commonly believed; it constitutes 6 percent of total health
care spending, and half of that expenditure is incurred by individuals under the
age of 65 (Barton, 2010, p. 350).46

Conclusion

It is widely believed that the elderly cause an increase in health care inflation—
that it is age per se rather than other factors that create major fiscal problems due
to demands on government health care programs. This is not what major peer-
reviewed research has determined causes consistently escalating inflation in the
health care sector of the economy. Rather, most health policy experts and
researchers addressing this issue have concluded that technology in the form of
medical advances is to blame for the largest proportion of health care inflation.
They ascribe very little of the cause to an aging society.
The silver tsunami metaphor applied to those individuals born between 1946
and 1964 has been effective in leading the public to believe that a major strain
will be placed on the health care system generally and Medicare specifically as
this generation retires. This is falsified by the much larger elderly populations in
countries with much lower per capita health care costs.
16 Poverty & Public Policy, 7:1

The belief that a growing elderly population with an increasing life expectancy
will be a major factor in health care inflation is also belied by the recent cost
controls exercised by the Center for Medicare & Medicaid Services in the Obama
administration. Provisions included in the Affordable Care Act to reduce fraud,
excessive hospitalization, and other factors hampering effectiveness and efficiency
have proved to be effective in reducing growth in Medicare expenditures. Indeed,
the Part A (Hospitalization) component of Medicare actually expended less in 2013
than in 2012.
It is also widely believed that acute care costs increase linearly with age. It is
true that as people near late midlife and early-elderly stages of the life span, the
probability that they will need to access the acute care component of the health
care system increases. But the age at which this probability peaks is in the five
years from 65 through age 69. Except for the age from birth through four, the 65–
69 age period is when the most costly hospital charges will be incurred. Nearly a
third (31 percent) of extremely high charges are the result of cardiovascular
disease, which can often be traced to its primordial stages of atherosclerosis in
young adulthood and even in infancy.
Following age 70, the average hospital charge begins to decline. At age 80, the
number of patients in the five-year age category and the average charges drop
precipitously. The old-old (80 þ) tend to access acute care less and to receive a
much lower amount of extremely costly medical services than patients in their 60s.
The relationship between neonatal intensive care and extreme charges is not
apparent from the overall average for infants. Birthing is the most frequent
procedure in the acute care component of the health care system. Thirteen percent
of patients are infants under the age of five. No other five-year age category is
this large of a proportion of hospital patients. Nearly a third of charges of
$1,000,000 or more are for patients under the age of five.
For both the 65–70 and 0–4 age categories of patients, high charges are due to
advanced, lifesaving medical procedures. This phenomenon is characterized by
an interaction of poverty with medical innovation such as neonatal intensive care
and advances in treating heart disease. Although 20 percent of U.S. children are
living in poverty, 55 percent of babies with charges above $174,933 or two
standard deviations above the overall mean of $19,291 were reimbursed by
Medicaid, a means-tested program serving children in poverty.
Cardiovascular disease and preterm, low birth weight, like practically all
other diseases, are exacerbated by poverty. Poor people do not have opportunities
for the types of health care and lifestyle associated with wellness.
The conversation about health care inflation needs to move from the myths
about elderly people and begin to focus on macroeconomics and the results of a
health care system that has left tens of millions without access to medical care.
Diseases and illnesses left to progress through their natural stages to crises will
be much more costly. The bioethics of not treating individuals with severe health
problems is not acceptable.
The refined analyses of age and health care costs presented in this article
have demonstrated that the extremely high costs in hospital care are not only in
Kingsley: Aging and Health Care Costs 17

the elderly and not in the “old-old“ (over 80) population in particular. Also, the
diagnoses and procedures likely associated with extreme costs have been
identified. This has not been previously reported in the medical literature. In that
regard, the methodology and findings add to the science of understanding and
analyzing acute care costs.

Notes

1. That such a misperception exists has been recognized by researchers in the field of health policy.
See, for example, Canadian Foundation for Healthcare Improvement (2011), “Myth: The Aging of
the Population Is to Blame for Uncontrollable Healthcare Costs,” http://www.cfhi-fcass.ca/
SearchResultsNews/2011//22/f20f6cb8-bfd0–453e-b47002–6fb63c93a629.aspx; Reinhardt (2003),
“Does Aging of the Population Really Drive the Demand for Health Care?” Health Affairs, 22,
22–39.
2. New York Times journalists Jackie Calmes and Robert Pear cover and report on the debate over
fiscal policy, which has been focused on federal deficits and debt. These two reporters’ articles
have often appeared on the front page “above the fold.“ Analysis of the text of their articles during
2010 and 2011 (when there was an attempt between the Democrats, the president, and the
Republicans to achieve the so-called “grand bargain“) revealed that Calmes and Pear took for
granted and reported that “entitlements had to be reigned in“ because of the coming impact of the
“baby boom“ generation. The actual contents of the grand bargain are not clear. However, it had
two major dimensions over which the president and Republican leadership negotiated: tax
increases and cuts in entitlement programs. A typical example of the articles appearing in the New
York Times is an article appearing November 18, 2013, under Calmes’s byline (“A Dirty Secret
Lurks in the Struggle Over a Fiscal ‘Grand Bargain’”), in which she writes that “the declining
deficit reflects economic growth as well as spending cuts and tax increases that Mr. Obama and
Congress previously agreed to. It is not expected to begin climbing again until about 2018, as more
baby boomers draw from Medicare, Medicaid, and Social Security.”
3. For instance, 80.1 percent of 131 graduate-level allied health students (e.g., nursing, nutrition/
dietetics, medicine, health policy, and management) in a statistics course in a major midwestern
medical school either agreed or strongly agreed with the following statement: “In the next 20 years,
the 65þ population will have the biggest impact on health care costs.“ Forty-three percent either
agreed or strongly agreed that “Medicare will be the biggest cause of increased health care costs.”
These items are included in a much larger survey designed by the author to measure elderly-
related attitudes of allied health graduate students in 2011 and 2012. Students enrolled in a
statistics course, which was focused on health care statistics, were asked to complete the items on
the first day of classes. The results presented are based on 131 completed surveys in four semesters
in 2011 and 2012. Validity and reliability of scales embedded in the survey items have been
established through classic true score methodologies such as principle axis factor analysis and
Cronbach’s alpha. In addition to classic true score modeling, validity of scales embedded in the
survey was established through a more recent psychometric technique known as Rasch modeling.
The two items mentioned in this endnote have been taken from a single scale of several items with
high validity and reliability and not used in this context as measures of a total scale score.
Construct validity and reliability support for the survey scales are available from the author upon
request.
4. For example, The Moment of Truth: The Report of the National Commission on Fiscal Responsibility and
Reform (the so-called Simpson–Bowles Plan; 2010, Washington, DC: White House) reflects
assumptions that, due to Medicare and Social Security expenditures, the nation cannot afford the
current defined benefits under those programs.
5. In addition to the Simpson–Bowles plan to reduce benefits by increasing age of eligibility,
changing the formula for the cost-of-living adjustment (COLA), changing deductibles, and several
other changes, other plans were floated around by think tanks and legislators. One such plan was
disseminated by Senator Ron Wyden and Congressman Paul Ryan entitled “Guaranteed Choices
to Strengthen Medicare and Health Security for All” (December 15, 2011), www.budget.house.
18 Poverty & Public Policy, 7:1

gov/bipartisanhealthoptions. This plan would have converted the defined benefits Medicare
program into a defined contribution program (often called a voucher program). The author
interacted on several occasions with Senator Wyden and his legislative assistant on this legislation.
Another plan was disseminated by former Senator Pete Domenici and Alice Rivlin, former director
of the Office of Management and Budget, on behalf of the Committee for a Responsible Federal
Budget—a powerful Washington think tank. The Domenici–Rivlin plan included a voucher
program much like the Simpson–Bowles plan and the Wyden–Ryan plan and similar cuts in
benefits.
6. Quoted in Stangneth (2014), Eichmann Before Jerusalem. New York: Alfred A. Knopf, p. 15.
7. Popper (1980), The Logic of Scientific Discovery. New York: Routledge.
8. The following assertion would be a starting point in the scientific evaluation of universal
statements regarding the growth of the elderly population as a cause of health care inflation: “if
the elderly population grows in proportion to the overall population, then health care inflation
will increase“ (p > q). Assuming that the major premise is true (the elderly population increases
proportionally) and that health care inflation increases, it would be invalid to assume the
following: “inflation increased, therefore the proportional increase in the elderly population caused
it” (q > p). This would be a fallacy known as affirming the consequent. However, if the elderly
population becomes a proportionally larger part of the overall population and health care inflation
does not rise proportionally, it is valid to assert that the universal statement has been falsified. In
other words, ~q > ~p is a valid statement. This is the application of modus tollens to the logic of
science (see Popper, 1980, p. 42).
9. Medicare Trustees Report (2013), http://www.cms.gov/Research-Statistics-Data-and-Systems/Statis-
tics-Trends-and-Reports/ReportsTrustFunds/Downloads/TR2013.pdf.
10. Mirel and Carper (2014), “Trends in Health Care Expenditures for the Elderly, Age 65 and Over:
2001, 2006, and 2011.” Washington, DC: Medical Expenditure Panel Survey, Agency for Healthcare
Research & Quality, http://meps.ahrq.gov/mepsweb/data_files/publications/st429/stat429.
shtml.
11. Conover (2012), American Health Economy Illustrated. Washington, DC: AEI Press.
12. Healthcare Cost and Utilization Project (HCUP) (2012) Nationwide Inpatient Sample (NIS).
Rockville, MD: Agency for Healthcare Research and Quality. The HCUP database includes a 20
percent sample of hospital discharges per year. The 2012 NIS contains nearly eight million cases.
The data are readable into the SPSS(tm) statistical program. The results presented have been
produced through the analysis and manipulation of the data with SPSS(tm).
13. Davis, D. (2007), The Secret History of the War on Cancer. New York: Basic Books.
14. Organization Economic Development & Cooperation (OECD), (2014), http://www.oecd-ilibrary.
org/social-issues-migration-health/total-expenditure-on-health-per-capita_20758480-table2.
15. http://www.oecd.org/berlin/47570143.pdf.
16. http://data.worldbank.org/indicator/SP.POP.65UP.TO.ZS.
17. U.S. Census Bureau.
18. http://www.commonwealthfund.org/~/media/Files/Publications/Fund%20Report/2012/Nov./
1645_Squires_intl_profiles_hlt_care_systems_2012.pdf.
19. 2010–2012 data, report December 2012.
20. Ikeda et al. (2011), “Japan Universal Health Care at 50 Years: What Has Made the Population of
Japan Healthy?” The Lancet, 378, September 17: 1094–1105.
21. OECD (2014a), Fertility Rates (Indicator). doi:10.1787/8272fb01-en.
22. The Medicare Trustees’ reports for 2010–2013 can be found at (2010) http://www.cms.gov/
Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/down-
loads/tr2010.; (2011) http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-
Trends-and-Reports/ReportsTrustFunds/Downloads/TR2011.; (2012) http://www.cms.gov/Re-
search-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Down-
loads/TR2012.; (2013) http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-
Trends-and-Reports/ReportsTrustFunds/Downloads/TR2013.pdf.
23. (2014) http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/
ReportsTrustFunds/Downloads/TR2013.pdf, p. 3.
24. Conover (2012), American Health Economy Illustrated. Washington, DC: AEI Press.
25. The CPI Detailed Report-January 2014 published by the Bureau of Labor Statistics (http://www.
bls.gov/cpi/cpid1401.pdf) indicates that hospital inpatient services increased at a rate of 5.3
percent in 2013.
Kingsley: Aging and Health Care Costs 19

26. Lubitz et al. (1995), “Longevity & Medicare Expenditures,” New England Journal of Medicine, 332,
999–1002.
27. See, for example, Halpert and Zimmerman (1986), “The Health Status of the ‘Old-Old’: A
Reconsideration,” Social Science Medicine, 22, 893–899; Kramer (1995), “Health Care for Elderly
Persons—Myths and Realities,” New England Journal of Medicine, 332, A. Lubitz et al. (2003),
“Health, Life Expectancy, and Health Care Spending Among the Elderly,” New England Journal of
Medicine, 349, 1048–1055; McGrail et al. (2011), “Diagnosing Senescence: Contributions to Physician
Expenditure Increases in British Columbia, 1996/97–2005/06,” Healthcare Policy, 7, 41–45; Morgan
and Cunningham (2011), “Population Aging and the Determinants of Health Care Expenditures:
The Case of Hospital, Medical, and Pharmaceutical Care in British Columbia, 1996–2006,” Health
Care Policy, 7, 69–78; Reinhardt (2003), “Does the Aging of the Population Really Drive the
Demand for Health Care?” Health Affairs, 32, 6.
28. Congressional Budget Office (2008), Technological Change and the Growth of Health Care Spending, p.
8.
29. A similar table with the same data appeared in a graduate textbook published by the Association
of University Programs in Health Administration; see Barton (2010), Understanding the U.S. Health
Services System, 4th edition. Arlington, VA: AUPHA.
30. “Rent seeking” and “medical-industrial complex” are technical economic terms and are not meant
to be inflammatory, polemical, or provocative in some manner. See, for example, Stiglitz (2012),
The Price of Inequality. New York, NY: Norton. The Nobel laureate economist included a chapter
entitled “Rent Seeking and the Making of an Unequal Society,” in which he explained how
corporations and industries wield their influence and power to restrict competition and artificially
set prices.
31. According to OECD statistics, only Mexico and Turkey have higher infant mortality rates than the
United States, which is 6.1 infant deaths per thousand; see http://www.oecd-ilibrary.org/social-
issues-migration-health/infant-mortality_20758480-table9.
32. Healthcare Cost and Utilization Project (HCUP) (2012), Nationwide Inpatient Sample (NIS). Rockville,
MD: Agency for Healthcare Research and Quality. The HCUP database includes a 20 percent
sample of hospital discharges per year. The 2012 NIS contains nearly eight million cases. The data
are readable into the SPSS(tm) statistical program. The results presented have been produced
through the analysis and manipulation of the data with SPSS(tm).
33. See, for example, the much touted Simpson–Bowles plan, and the Domenici–Rivlin plan; the
Wyden–Ryan proposal mentioned above.
34. Healthcare Cost and Utilization Project (2014), National Inpatient Sample (NIS) 2012. Rockville, MD:
Agency for Healthcare Research and Quality.
35. Lane (2008), Why Are Our Babies Dying? Boulder, CO: Paradigm.
36. See, for example, Esselstyn (2007), Prevent & Reverse Heart Disease. New York, NY: Avery.
37. Strong (1986), “Coronary Atherosclerosis in Soldiers: A Clue to the Natural History of
Atherosclerosis in the Young.” Journal of the American Medical Association, 256, 2863–2866; see also
McNamara et al. (1971), “Coronary Artery Disease in Combat Casualties in Vietnam.” Coronary
Disease, 216, 1185–1187.
38. Paul et al. (2005), “Cardiovascular Risk Profile of Asymptomatic Healthy Young Adults with
Increased Femoral Artery Intima-Media Thickness: The Bogalusa Heart Study.” American Journal of
the Medical Sciences, 330, 106–110; see also Berenson (2001), “Bogalusa Heart Study: A Long-Term
Community Study of a Rural Biracial (Black/White) Population.” American Journal of the Medical
Sciences, 332, 276–274.
39. The Pareto Principle, also known as the 20/80 rule, was formulated by Italian economist Vilfredo
Pareto, who noticed that many phenomena in nature and economics are configured with 20
percent of a factor causing 80 percent of an effect.
40. Erlich et al. (2010), “Health Care Cost Drivers: Chronic Disease, Comorbidity, and Health Risk
Factors in the U.S. and Michigan,” Center for Healthcare Research & Transformation, http://
www.chrt.org/assets/price-of-care/CHRT-Issue-Brief-August-2010.pdf.
41. The raw hospital charge data are extremely skewed in a positive direction; hence, the total charge
variable “TOTCHG” in the HCUP dataset must be transformed to a logarithm with the average
logarithm of hospital charges exponentiated for determination of the appropriate mathematical
average. The 95th percentile or two standard deviations above the mean is determined by
multiplying the logarithmic standard deviation by 1.96 and then adding this value to the
logarithmic mean and exponentiating this value.
20 Poverty & Public Policy, 7:1

42. See http://kff.org/other/state-indicator/poverty-rate-by-raceethnicity/ for notes and sources.

43. See, for example, http://www.icd9data.com/.
44. See, for example, Campbell and Campbell (2006), The China Study. Dallas, TX: Benbella Books.
45. Wolfe (2011), “Poverty and Poor Health: Can Health Care Reform Narrow the Rich-Poor Gap?”
Focus, 28, 25–30; Smolderen et al. (2003), “Health Care Insurance, Financial Concerns in Accessing
Care, and Delays to Hospital Presentation of Acute Myocardial Infarction,” Journal of the American
Medical Association, 303, 392–1400.
46. Barton (2010), Understanding the U.S. Health Services System. Arlington, VA: AUPA.

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