New Reports Highlight Out-of-Pocket Costs for Medicare Beneficiaries

As discussions in Washington are under way to identify possible national budget reductions, including changes to Medicare, the Kaiser Family Foundation has released 3 new reports that highlight the current out-of-pocket costs for Medicare beneficiaries and what may lie ahead for future generations. Medicare provides healthcare coverage for approximately 48 million senior citizens and disabled Americans; however, this coverage is also associated with out-of-pocket healthcare costs. These costs, including premiums, cost-sharing requirements, and gaps in Medicare benefits, can place a financial burden on beneficiaries and consume a substantial portion of household budgets. The 3 new data spotlights outline these financial burdens and assess income and asset projections for future Medicare beneficiaries.

Healthcare on a Budget

To assess the financial burden of healthcare spending and its impact on household budgets, the Kaiser Family Foundation released a report titled “Healthcare on a Budget” based on analysis from the Bureau of Labor Statistics Consumer Expenditure Survey Interview and Expense Files, 2002-2009. According to this data spotlight, in 2009 Medicare households spent substantially more (14.9%) of their household budget on healthcare expenses compared with non-Medicare households (4.8%), although similar shares of the budget were spent on other areas, such as food, housing, and transportation. The discrepancy in healthcare spending between the 2 groups was attributed to Medicare households with lower average household budgets and higher healthcare spending. Medicare households spent the largest portion of their healthcare costs on premiums, which accounted for 65.7% of healthcare spending in 2009. Researchers also found that healthcare spending in Medicare households increases with age.

In 2009, average healthcare costs accounted for 18.2% of the budget for households with a beneficiary ≥80 years of age, compared with 12.7% of the budget for households where beneficiaries were 65 to 69 years of age. In addition to older Medicare recipients, it was also determined that those households just above the poverty line had a greater healthcare burden in 2009 than those below the line or well above it. According to the findings, those people who were between 100% and 399% of the poverty level spent 16% of their household budget on healthcare expenses compared with an average of 13.6% for households below the poverty line. This finding can be explained in part because those below the poverty level often are also enrolled in Medicaid; however, not all households below the poverty level receive Medicaid. Those households that do have dual coverage fared better (spending only 4.3% of their household budget on healthcare) than those below the poverty level without Medicaid (spending 16.6% of their budget on healthcare). When spending trends were reviewed, researchers found that Medicare beneficiaries were spending more of their total Medicare spending on health insurance premiums in 2009 than in 2002; at the same time, the share of spending on prescription drugs has decreased.

Financial Burdens Based on Income

In addition to examining the financial burden of out-of-pocket Medicare costs on household budgets, the Kaiser Family Foundation assessed which Medicare beneficiaries had the largest burdens relative to their income in a report titled “How Much ‘Skin in the Game’ Is Enough?” The analysis utilized data from the Medicare Current Beneficiary Survey Cost and Use Files, 1997-2006. According to the data spotlight, the median out-of-pocket healthcare spending increased from 11.9% of income in 1997 to 16.2% of income in 2006. The median out-of-pocket spending for Medicare premiums and supplemental insurance also increased from 5.5% of income in 1997 to 8.0% of income in 2006. In addition, researchers found that 1 in 4 Medicare beneficiaries in 2006 spent ≥30% of their income on healthcare expenses, while 1 in 10 spent half of their income on healthcare expenses that year. Similar to the findings in the previous data spotlight, the report also found that the highest financial burden occurred for those individuals who were ≥85 years of age.

These beneficiaries spent 23.5% of their income in 2006 on median out-of-pocket spending, compared with the 14.1% of income individuals age 65 to 74 years spent on out-of-pocket healthcare costs. Beneficiaries with low or modest incomes and those with Medicare Advantage (MA) supplemental insurance also spent higher shares of their income on healthcare costs (20.9% for those below the poverty level in 2006 and 25.1% for beneficiaries with MA). In 2006, while the average out-of-pocket expenses per beneficiary were $4241 for the year, it was discovered that 40% of out-of-pocket spending went to pay for premium costs. Other areas of healthcare spending included the cost of long-term care (accounting for 19% of spending), medical providers and supplies (15%), and prescription drugs (12%). When out-of-pocket spending was assessed over time, it was estimated that if previous trends continue, the median out-of-pocket spending for Medicare beneficiaries could reach 26% of income by 2020.

Future Predictions

The Kaiser Family Foundation considered future implications in a report titled “Projecting Income and Assets: What Might the Future Hold for the Next Generation of Medicare Beneficiaries?” The asset and income estimates in the report were based on the Urban Institute’s Dynamic Simulation of Income Model. In the spotlight, it was reported that half of all Medicare beneficiaries had incomes <$20,644 in 2010. The median income was significantly higher for white beneficiaries ($22,879) when compared with black ($14,174) and Hispanic ($13,359) Medicare members. Income for senior citizens was also found to decrease with age. Over time, the per capita income is expected to increase; however, according to the projections, the increase will be higher for those in the higher income brackets and will create a wider income gap among those covered by Medicare. For example, the average income is expected to grow by 37% for the next generation of beneficiaries in the top 10% of income distribution, while the increase for the bottom quarter will only be 17%. The income increases are also expected to be higher for white beneficiaries.

It is estimated that in 2030, 34% of white beneficiaries will have incomes ≥600% of the poverty level, while the estimates are lower for black (15%) and Hispanic (18%) beneficiaries, the report noted. The report also examined the financial assets for beneficiaries and found that in 2010 half of all beneficiaries have <$60,000 in home equity. In addition, about half have <$2000 in retirement savings and about half have <$30,000 in financial assets. Once again, the impact of these findings differs based on ethnicity. According to the results, white beneficiaries had higher average home equity values in 2010 compared with black and Hispanic beneficiaries, and that trend is expected to continue through 2030. In addition, white beneficiaries had higher average savings ($299,388) in 2010 compared with black ($48,872) and Hispanic ($81,394) Medicare beneficiaries. By 2030, these numbers are expected to grow to a projected savings of $471,353 for white beneficiaries, compared with $101,148 for black beneficiaries and $143,639 for Hispanic beneficiaries.