Tuesday, July 22, 2014
Kaiser Family Foundation
July 21, 2014
How Much Is Enough? Out-of-Pocket Spending Among Medicare Beneficiaries:
By Julliette Cubanski, Christina Swoope, Anthony Damico and Tricia Neuman
As part of efforts to rein in the federal budget and constrain the
growth in Medicare spending, some policy leaders and experts have
proposed to increase Medicare premiums and cost-sharing obligations.
Today, 54 million people ages 65 and over and younger adults with
permanent disabilities rely on Medicare to help cover their health care
costs. With half of all people on Medicare having incomes of less than
$23,500 in 2013, and because the need for health care increases with
age, the cost of health care for the Medicare population is an important
Although Medicare helps to pay for many important health care services,
including hospitalizations, physician services, and prescription drugs,
people on Medicare generally pay monthly premiums for physician services
(Part B) and prescription drug coverage (Part D). Medicare has
relatively high cost-sharing requirements for covered benefits and,
unlike typical large employer plans, traditional Medicare does not limit
beneficiaries' annual out-of-pocket spending. Moreover, Medicare does
not cover some services and supplies that are often needed by the
elderly and younger beneficiaries with disabilities—most notably,
custodial long-term care services and supports, either at home or in an
institution; routine dental care and dentures; routine vision care or
eyeglasses; or hearing exams and hearing aids.
Many people who are covered under traditional Medicare obtain some type
of private supplemental insurance (such as Medigap or employer-sponsored
retiree coverage) to help cover their cost-sharing requirements.
Premiums for these policies can be costly, however, and even with
supplemental insurance, beneficiaries can face out-of-pocket expenses in
the form of copayments for services including physician visits and
prescription drugs as well as costs for services not covered by
Medicare. Although Medicaid supplements Medicare for many low-income
beneficiaries, not all beneficiaries with low incomes qualify for this
additional support because they do not meet the asset test.
Because people on Medicare can face out-of-pocket costs on three
fronts—cost sharing for Medicare-covered benefits, costs for non-covered
services, and premiums for Medicare and supplemental coverage—it is
important to take into account all of these amounts in assessing the
total out-of-pocket spending burden among Medicare beneficiaries. Our
prior research documented that many beneficiaries bear a considerable
burden for health care spending, even with Medicare and supplemental
insurance, and that health care spending is higher among older
households compared to younger households.
* Premiums for Medicare and supplemental insurance accounted for 42
percent of average total out-of-pocket spending among beneficiaries in
traditional Medicare in 2010
* Out-of-pocket spending rises with age among beneficiaries ages 65 and
older and is higher for women than men, especially among those ages 85
* As might be expected, beneficiaries in poorer health, who typically
need and use more medical and long-term care services, have higher
out-of-pocket costs, on average.
* Just as Medicare spends more on beneficiaries who use more
Medicare-covered services, more extensive use of services leads to
higher out-of-pocket spending.
* Among beneficiaries in traditional Medicare, those with a Medigap
supplemental insurance policy pay more in premiums for this additional
coverage, on average, than beneficiaries with employer-sponsored retiree
health benefits ($2,166 vs $1,335, on average, in 2010).
* Analysis of 'high out-of-pocket spenders' finds a disproportionate
share of certain groups, including older women, beneficiaries living in
long-term care facilities, those with Alzheimer's disease and ESRD, and
beneficiaries who were hospitalized, in the top quartile and top decile
of total out-of-pocket spending (including both services and premiums).
* Between 2000 and 2010, average total out-of-pocket spending among
beneficiaries in traditional Medicare increased from $3,293 to $4,734, a
44 percent increase.
The typical person on Medicare in 2010 paid about $4,700 out of pocket
in premiums, cost sharing for Medicare-covered benefits, and costs for
services not covered by Medicare. Even with financial protections
provided by Medicare and supplemental insurance, some groups of Medicare
beneficiaries incurred significantly higher out-of-pocket spending than
others, which could pose challenges for those living on fixed or modest
incomes. Out-of-pocket spending tends to rise with age and number of
chronic conditions and functional impairments, and is greater for
beneficiaries with one or more hospitalizations, particularly those who
receive post-acute care.
Comment by Don McCanne
This KFF update on the financial burden placed on Medicare beneficiaries
shows that average out-of-pocket costs are $4,734 when half of all
people on Medicare have incomes of less than $23,500. Although Medicaid
supplements Medicare for some low income beneficiaries, destitution is a
prerequisite for qualifying for Medicaid. The wealthy should have no
problems, but should affordable access to health care be granted only to
those with modest or low incomes who must give up what little fungible
assets they have been able to accumulate through life?
Another concern in this report is that those with a Medigap supplemental
insurance plan pay considerably more in premiums than do those with an
employer-sponsored retiree health benefit program. Although Medigap
benefits are quite modest, the premiums charged make them one of the
worst values in the health insurance market.
Medicare benefits need to be expanded to a level at which Medicare
becomes a prepaid health care program. When you need health care, you
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