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Policy makers in the US are increasingly concerned that greater use of the Medicare hospice benefit by people with dementia is driving up costs. Yet this perspective fails to incorporate potential cost savings associated with hospice. We estimated the association between hospice use by people with dementia and health care costs, using Medicare Current Beneficiary Survey data from the period 2002-19. For community-dwelling people with dementia, Medicare costs were lower for those who used hospice than for those who did not, whether hospice enrollment was in the last three days ($2,200) or last three months ($7,200) of life, primarily through lower inpatient care costs in the last days of life. In nursing homes, total and Medicare costs were lower for hospice users with dementia who enrolled within a month of death than for those who did not use hospice. Total costs for the entire last year of life for those who used any days of hospice in the last year compared with no hospice did not differ, although Medicare costs were higher and Medicaid costs lower for those in nursing homes. Medicare policies that reduce hospice access and incentivize hospice disenrollment may actually increase Medicare costs, given that hospice cost savings generally derive from a person's last days or weeks of life.

As more people live and die in the community despite complex health needs and functional impairment, the need for hospice increases. We found high and increasing penetration of hospice in community-based residential settings, compared with hospice use in private residences and nursing homes.