address the multiple noneconomic losses endured by persons living with dementia and their families.

MAGNITUDE OF ECONOMIC COSTS

The primary economic costs of dementia to persons living with dementia and their families are (1) medical and long-term care costs, and (2) the value of unpaid caregiving provided by family (most commonly) and friends. Most estimates of these costs in the literature draw on such nationally representative data sources as the Health and Retirement Study, the Medicare Current Beneficiary Survey, and Medicare claims data. An estimate of annual per-person costs for 2019, which includes health care and the value of unpaid care provided to persons with Alzheimer’s disease, is approximately $81,000 ($31,000 is the value of the unpaid care) (Zissimopoulos et al., 2014). This estimate is about four times higher than the costs of the same care provided to similarly aged persons without the disease. Other estimates of annual costs are lower, with a range of $41,000–$56,000; estimates of the cost of unpaid care are less variable (Hurd et al., 2013; Moore et al., 2001). Cost estimates vary for reasons including, but not limited to, the methodology used for valuing the time spent by unpaid caregivers (e.g., replacement rate or opportunity cost of time); how medical care costs associated specifically with a dementia diagnosis are distinguished from the costs associated with other conditions; and the time frame over which costs are being evaluated (i.e., whether they include pre-diagnosis costs or end-of-life care).

Residential care is very expensive. Estimates of the typical costs of long-term care range from $52,624 per year for a home health aide to $90,000 for a semiprivate room in a nursing home and up to $102,000 for a private room (Genworth Financial, 2020). Medicaid, which covers long-term care for low-income individuals and those who become poor as a result of paying for health care and long-term care, is the largest public payer for long-term care, covering 62 percent of nursing home residents (Kaiser Family Foundation, 2017), and one-quarter of adults with dementia who live in the community are covered by Medicaid over the course of a year (Garfield et al., 2015). Recently, attention has turned to the “forgotten middle”—those who neither qualify for Medicaid nor have the resources to pay for long-term care (Pearson et al., 2019).

Additional insight into the economic costs of dementia can be gained by considering costs aggregated over a specific period of time. For example, one study calaculates the costs, including rest-of-lifetime medical care, unpaid caregiving, and long-term care, for a 70-year-old who develops dementia (Zissimopoulos et al., 2014). This estimate—more than $700,000—is three times higher than estimated lifetime health care costs for a 70-year-old who

dies without developing dementia. Another study estimates that lifetime out-of-pocket medical costs for a person living with dementia are about $38,000 higher than the costs for a similar person without dementia (Hudomiet et al., 2019). An estimate of 5-year incremental costs to the traditional Medicare program for each dementia diagnosis (additional costs associated with the diagnosis for the 5-year period) is approximately $15,700 per patient, with nearly half of these costs incurred in the first year after diagnosis (White et al., 2019). A systematic review of nine studies provides ranges for costs attributable to both prevalent and incident dementia in private Medicare managed care plans. For prevalent cases, the estimates range from $3,700 to $8,700. The variation is wider—$8,900 to $38,800—for incident cases (based on first-year postdiagnosis costs) (Fishman et al., 2019).

Despite the methodological differences that yield varied estimates, the high costs of dementia are well documented. When aggregated to the U.S. population, the costs are estimated to have exceeded $500 billion in 2019 and are projected to increase to about $1.5 trillion by 2050 (Alzheimer’s Association, 2021; Zissimopoulos et al., 2014).

Unaccounted for in these estimates are other economic costs, such as the impact on caregivers’ wages and future employability; when included, these costs increase estimates of unpaid caregiver costs by as much as 20 percent (Coe et al., 2018). Moreover, these costs may be underestimated because the physical and mental strain associated with unpaid caregiving likely translates to other costs, such as for caregivers’ own health care (Chen et al., 2020; Watson et al., 2019; Goren et al., 2016). Also not included in the estimates reported above are costs to employers, such as the costs of absenteeism, productivity losses, and turnover associated with employees’ need to provide care for loved ones. Other costs unaccounted for include financial harm to persons living with dementia and their families. Cognitive impairment may lead to financial decision-making errors, including payment delinquency and susceptibility to financial exploitation, starting years before diagnosis (Nicholas et al., 2020). Financial harm to individuals living with dementia may also have long-term implications for the surviving spouse.

Poorly documented as well are disparities in who bears the costs of dementia, such as differences across racial and ethnic lines (Cantarero-Prieto et al., 2019). Estimated annual medical care and caregiving costs associated with dementia, based on data from the Health and Retirement Study, are about $20,000 higher for Hispanic and Black individuals than for their White counterparts (Alzheimer’s Association, 2016). Other studies have found lower medical expenditures that may reflect differential access to care and preferences for types of care (Park and Chen, 2020). Questions about how persons living with dementia and their families finance the high costs of dementia are urgent and will grow more so if not addressed as dementia cases increase.

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¹ Medicare pays for time-limited care after a hospital stay or acute episode and is beginning to cover a small amount of supplemental services (typically a few days per year) but does not cover true long-term care.

High rates of comorbid conditions and complicated management of those conditions make a key contribution to the excess health care costs incurred by individuals with dementia (Lin et al., 2013). Coordination of care across multiple conditions may therefore provide opportunities to improve outcomes and increase the efficiency of care (see Chapter 6) (Zulman et al., 2015; Boyd et al., 2005).

Systematic reviews of cost drivers have identified consistent findings that costs increase as dementia progresses from the mild or early stage to the severe or late stage (Schaller et al., 2015). The last year of life is typically the most expensive for people living with dementia because of the amount and nature of care they need (see Chapers 3 and 6) (Kelley et al., 2015). The heterogeneity of costs within disease stages, however, is less well understood. Several new models for comprehensive dementia care have shown promise not only for improving care and outcomes but also for reducing costs (see Chapter 6 for discussion of comprehensive dementia care) (Haggerty et al., 2020). Although similar in aims, such programs differ in many ways, including scope of services and cost and effectiveness; the rigor of the studies that have evaluated them also varies (Boustani et al., 2019). Dissemination of such care models has thus far been limited. Traditional Medicare and Medicare Advantage plans do not cover all components of comprehensive care, and the health care systems that would implement those services often lack the infrastructure needed to deliver them. Further research on the cost-effectiveness and value of different programs and how payment structures can be modified to deliver better and lower-cost dementia care would support the achievement of value in care.

The cost and reimbursement structures of traditional Medicare and Medicare Advantage plans also play a key role in the overall cost picture. Newer Medicare benefits, such as the annual wellness visit with its required cognitive screening, may increase early detection, but the effects on costs are as yet unknown (Jacobson et al., 2020). The factors driving differences in costs across the types of Medicare plans (see Chapter 6) are not well understood, but differences in benefits are likely a factor. For example, Medicare Advantage special needs plans (coverage for defined disabilities; see Chapter 6) are available to persons with dementia and provide targeted care (e.g., dementia care specialists) and drug formularies designed for these beneficiaries; they often also cover the cost of a care coordinator. These special needs plans increase use of primary care and improve management of such chronic conditions as diabetes; however, whether this is the case for persons living with dementia and with what implications for costs are not well understood (Cohen et al., 2012).

While there is ample evidence that participants in Medicare Advantage plans have lower rates of hospitalization and readmission compared with participants in traditional Medicare, after risk adjustment, whether these

broad differences persist for persons living with dementia is unknown (Cohen et al., 2012). Beginning in 2020, Medicare Advantage risk adjustment includes dementia, which will increase payments to Medicare Advantage plans for medical care for persons living with dementia. The adjustment provides incentives for better detection of dementia and improved care, with unknown impacts on costs. Further research is needed to explore how the organization of health care and reimbursement and payment systems affect costs and their distribution across payers.

THE ECONOMICS OF INNOVATION

Several types of innovation have the potential to provide value through their impact on costs (cost savings) and by extending life-years and the quality of those life-years. Innovations may reduce direct medical costs and may also reduce the costs associated with caregiving or long-term care. Improvements in quality of life may not be easily measurable but have value beyond reduction in costs. The potential benefits of models for comprehensive care have already been discussed in Chapter 6, but there are other possibilities.

First, more than 130 innovative treatments for Alzheimer’s disease and related dementias are being investigated in clinical trials, and some may turn out to slow or halt disease progression and reduce costs (Cummings et al., 2019). A simulation study found that a hypothetical treatment innovation that delayed the onset of Alzheimer’s disease by 5 years would reduce the population with the disease by 41 percent in 2050, which would reduce annual costs by $640 billion (Zissimopoulos et al., 2014). However, novel treatments, which would likely have high prices, could exacerbate the overall economic impact of the disease. Such treatments would also likely be less available to disadvantaged populations and in underserved regions, which could increase disparities in outcomes (Jervis et al., 2007). Furthermore, the potential treatments currently under study, even if successful, are mostly designed to prevent or delay progression from mild cognitive impairment (MCI) or mild dementia, and would not likely improve outcomes for the millions of Americans who already meet criteria for moderate to severe dementia.

Innovations may extend life or bring a greater number of years with improved quality of life. Using a measure known as a quality-adjusted life-year, researchers can estimate the diverse costs of disease and the value of innovation. Uncertainty about the innovation’s long-term effectiveness will pose challenges for value assessment, however. Novel treatments targeting younger patients (i.e., under age 65) present incentive challenges regarding coverage and reimbursement for health care payers. For example, biomarkers for Alzheimer’s disease that are currently available or will

soon be available (see Chapter 3) could identify large groups at risk for the disease, many of whom would never go on to develop clinical symptoms. Everyone in such a group might be eligible to take a novel medication that was approved, but a far smaller portion would actually benefit. Thus, the costs for these expensive medications could be quite large relative to the number of people they would benefit. If drugs are targeted to those with MCI or mild dementia, most recipients would be Medicare beneficiaries, so that program would bear the brunt of these new costs.

Research on alternative payment mechanisms, such as performance-based installment payments, may aid in aligning incentives and produce improved coverage and value outcomes. The clinical, economic, and social implications of innovations in diagnostics, such as the introduction of the Precivity blood test for Alzheimer’s disease, are uncertain. Whether earlier and more accurate diagnostics would improve care, reduce avoidable hospitalizations, improve patient financial planning, and spur innovation in treatment is as yet unknown, although these new diagnostics would almost certainly increase costs associated with follow-up health care utilization.

Nonpharmacologic innovations may also have cost impacts warranting study. For example, innovations in housing (see Chapter 5) and in long-term care (see Chapter 6) are designed to allow individuals living with dementia to retain independence longer and avoid more expensive institutional placements. Although these innovations have their own costs, it will be valuable to understand the implications. Similarly, the use of technology to offset some labor costs could have varied implications, including allowing higher wages for direct care workers and reducing the need for highly paid care in certain settings.

APPLYING BEHAVIORAL ECONOMICS

Behavioral economics, an interdisciplinary field that draws on research in both psychology and economics, offers a valuable approach to identifying opportunities to reduce costs or add value to costly services. This approach breaks with the usual assumption of economists that individuals act purely according to rational self-interest. Behavioral economists acknowledge the role of reason but also take into account the influence of other factors that have traditionally been the province of psychology, such as limited cognition, biases, and social motivations (see, e.g., Thaler and Sunstein, 2008). Interventions designed by behavioral economists are intended to influence actions to encourage particular outcomes through subtle modifications of the choice environment, such as altering the way options are presented, how many are offered, or how incentives are conveyed or emphasized (Fox et al., 2020).

This approach has been applied to many aspects of health and health policy, leading to improvements in health and health behaviors (Meeker

et al., 2016; Doctor et al., 2018; Halpern et al., 2013). In this context, behavioral economists have posited that individuals may not act in their own best interest for varied reasons, including incomplete information about an issue, heuristics (or rules of thumb) they use in making decisions, and the like (Rice, 2013). However, this approach has not been widely applied to challenges associated with dementia, and it could be of significant value in the design of interventions to, for example, support conversations about advance care planning among patients, caregivers, and clinicians; align nonfinancial incentives, such as by discouraging the inappropriate use of antipsychotics; or encourage health care providers to offer screening for cognitive impairment. Such tools as “nudges” that influence choices below the conscious level, and changes in features of the physical and social environments to change health-related behavior (choice architecture), may be more effective than investment in education or awareness campaigns.

A WORD ABOUT THE COSTS OF ADUCANUMAB

The recent approval by the U.S. Food and Drug Administration (FDA) of the first new drug in decades that is intended to treat Alzheimer’s disease, aducanumab, is likely to have substantial impact on the cost picture (we discuss other issues related to this approval in Chapter 9). The economic costs of aducanumab or any other anti-amyloid drugs with similar pricing, administration, monitoring requirements, and possible adverse effects are considerable. These costs include the purchase price of the drug and the costs of the intravenous infusion, MRI scans (baseline and twice in the first year for aducanumab), and assessment and treatment of adverse effects. In addition, two tests used in the clinical trials cited in the FDA application suggest the possibility of additional costs: amyloid PET scans were used to determine patients’ eligibility, and testing for certain genes linked with Alzheimer’s disease was used to determine maximum dosing, because those with a particular genotype were more likely to develop the principal adverse effect of this medication. At present, neither of these tests is covered by Medicare, but these would either be substantial out-of-pocket expenses to patients or would further increase the cost to Medicare of covering the new drug.

The manufacturer of aducanumab initially estimated that 1 to 2 million persons would currently be eligible to receive the medication, although that number may change depending on eligibility guidelines. Using the manufacturer’s estimated cost of $56,000 per patient per year, the total cost just for the drug could range from $56 billion to as much as $112 billion. Whatever number of people ultimately receive the drug, such estimates do not include the costs of infusion, monitoring and treating adverse effects,

and additional pre-administration testing. The magnitude of ancillary costs is not yet established, but observers have suggested that they could add tens of thousands in costs per eligible patient (New York Times, Cubanski and Neuman, 2021). To put the cost of the drug alone into perspective, the total 2021 National Institutes of Health budget is $43 billion and the total 2021 Medicare budget is $688 billion.

Crucially, the out-of-pocket costs to patients may be substantial. Generally, Medicare covers 80 percent of the cost of drugs included under Part B, and beneficiaries pay the remaining 20 percent. For aducanumab treatment, that means a cost of roughly $11,500 each year, or nearly 40 percent of the $29,650 median annual income for Medicare beneficiaries in 2019 (Cubanski and Neuman, 2021). If private insurers and Medicare grant coverage of the drug, the distribution of out-of-pocket costs across individuals and families will depend on insurance type. There will be variation in the coverage provided by the private plans that younger persons not eligible for Medicare rely on. For those covered by traditional Medicare, out-of-pocket costs will depend on supplemental coverage, while for beneficiaries in Medicare Advantage costs will depend on plan type. Variation in out-of-pocket costs will contribute to inequities in drug access and financial impact across families. Since aducanumab would be covered under Part B, rather than Part D, the prescription drug plan, it is not clear that states’ Medicaid programs would necessarily cover the treatment, and it is likely that few state Medicaid plans would cover the required copayment.

Apart from questions about the medical benefits of aducanumab, discussed in Chapter 9, an assessment of the value of it or similar treatments will depend on their impact on costs, both direct costs associated with treatment and associated medical care and indirect costs such as impacts on long-term care costs. Another aspect to be considered is social value, that is, the value of any extended life-years and how the treatment alters the quality of those life-years. Aducanumab and similar treatments may be valuable to individuals and their families, but improved means of measuring value are needed to make such assessments. A standard cost-effectiveness analysis has limitations in the context of serious illnesses such as Alzheimer’s disease. For example, standard approaches typically do not allow value benchmarks (e.g., $100,000 per quality-adjusted life-year) to increase with disease severity, so they generally over-value treatments for less severe illnesses, relative to severe illnesses. Additionally, the difference between what sick people would pay to treat illness and what healthy people would pay to insure against illness may be larger for severe diseases such as Alzheimer’s disease (Lakdawalla and Phelps, 2020). Valuation of aducanumab will require consideration of uncertainty and variability in treatment outcomes and how these may change over time as evidence is collected. Moreover, a true assessment of value would also take equity into account.

REFERENCES