Abstract
Widely studied as a predictor of long-term care use, functional disability is also an important explanatory variable for acute care costs spent for the elderly. As policy makers contemplate ways to control rapidly growing Medicare expenditures, such as increasing the enrollment of beneficiaries into managed care programs, knowledge about the relation between functional disability and Medicare costs is likely to become more important for the design of program features. The research described here uses data from the new Medicare Current Beneficiary Survey to estimate the relation between functional disability and Medicare costs, the effects on costs of interactions between disability and other personal characteristics of beneficiaries, and changes in the level of disability and Medicare costs.