Table 7.

Simulated Medical Care Spending for New Medicare Beneficiaries under Three Alternative Initial Health State Distributions

	Initial Health State Distribution
		Simulated
Simulated Spending*	Actual†	Observational Method‡	Instr. Var.Method§
Average annual spending (over 3 years) per beneficiary (2001 $s)
Medicare and Medicaid	3,899	3,768	3,560
Private insurance	1,027	1,027	1,010
Out-of-pocket	1,046	1,051	1,042
Total	6,022	5,921	5,712
Total spending¶ (billions, 2001 $s)
Medicare and Medicaid	7.15	7.04	6.72
Private insurance	1.88	1.92	1.91
Out-of-pocket	1.92	1.96	1.97
Total	11.05	11.06	10.78

Notes:

^*Based on equations (1) and (2) combining mean spending from Table 6 and distributions of initial health status from Table 5.

^†From Table 5, column 1.

^‡From Table 5, column 2.

^§From Table 5, column 3.

^¶Annual spending for a single age cohort (e.g., 66-year olds) of new aged Medicare beneficiaries.