2005 Articles

Is expanding Medicare coverage cost-effective?

Muennig, Peter A.; Franks, Peter; Gold, Marthe

Background: Proposals to expand Medicare coverage tend to be expensive, but the value of
services purchased is not known. This study evaluates the efficiency of the average private
supplemental insurance plan for Medicare recipients.
Methods: Data from the National Health Interview Survey, the National Death Index, and the
Medical Expenditure Panel Survey were analyzed to estimate the costs, changes in life expectancy,
and health-related quality of life gains associated with providing private supplemental insurance
coverage for Medicare beneficiaries. Model inputs included socio-demographic, health, and health
behavior characteristics.
Parameter estimates from regression models were used to predict quality-adjusted life years
(QALYs) and costs associated with private supplemental insurance relative to Medicare only.
Markov decision analysis modeling was then employed to calculate incremental cost-effectiveness
ratios.
Results: Medicare supplemental insurance is associated with increased health care utilization, but
the additional costs associated with this utilization are offset by gains in quality-adjusted life
expectancy. The incremental cost-effectiveness of private supplemental insurance is approximately
$24,000 per QALY gained relative to Medicare alone.
Conclusion: Supplemental insurance for Medicare beneficiaries is a good value, with an
incremental cost-effectiveness ratio comparable to medical interventions commonly deemed
worthwhile.