February 24, 2011
The Burden of Out-of-Pocket Costs on Medicare Beneficiaries
Medicare provides a vital foundation for the health and wellness of Americans who are 65 or older or have significant disabilities. The program currently covers a portion of health care costs for over 47 million individuals throughout the United States. While Medicare is critical in helping older people and people with disabilities pay for necessary services, beneficiaries are often required to share in those costs. In recent years several factors, including an economic downturn and policies by lawmakers, have caused the costs of services and care to shift even further to the beneficiary. Many deficit reduction proposals include changes to Medicare cost-sharing.
Increases in cost-sharing and out-of-pocket spending place a heavy burden on beneficiaries and have great implications for their health and daily living.
Medicare Beneficiaries Currently Have High Out-of-Pocket Health Care Costs
Medicare beneficiary health care spending already consumes roughly the same percentage of total household expenditures as food and transportation. With those essential costs also rising, beneficiaries are facing mounting challenges to maintaining their health and daily necessities.
Out-of-pocket (OOP) spending by Medicare beneficiaries as a percentage of their income has risen sharply in recent years, from 11.8% in 1998 to 16.2% in 2006. Out-of-pocket premium costs as a share of income rose from 5.3% in 1998 to 8% in 2006.
As a proportion of total spending, Medicare beneficiaries pay two times more out-of-pocket for health care than other Americans.
A separate analysis puts the median OOP spending figure as a share of income for beneficiaries higher, at 17%, and shows variations among demographics.
Women in 2006 paid 19% of their income towards health care compared to 15% for men, despite being more likely to have supplemental insurance.
Beneficiaries with lower incomes carried a higher burden: beneficiaries at or below the poverty level paid twice as much of their income towards care than beneficiaries with three times their income.
Beneficiaries with chronic conditions pay much more out of pocket than their healthier counterparts.
Most Medicare beneficiaries have at least one chronic condition, and many have more than one.
Beneficiaries with conditions like cancer and Alzheimer's disease paid 22% of their incomes towards care in 2006.
Beneficiaries in good health paid less than 15% and were more likely to have supplemental insurance. This may be due to the fact that sicker beneficiaries were unable to afford such supplemental coverage, or were denied the coverage altogether.
Further shifting of the cost-sharing burden to beneficiaries will cause them increased financial hardship. For 80% of beneficiaries, income from Social Security accounted for roughly half, or more, of their annual income in 2007. It is projected that by 2030, 36% of the average Social Security benefit will be consumed by cost-sharing for Part B and Part D premiums.
Effect of Higher Out-of-Pocket Expenses
The threat of taking even more from their income endangers not just the financial stability, but the health of these vulnerable beneficiaries. Though some policy makers contend that requiring Medicare beneficiaries to pay more out-of-pocket for their health care makes them better health care consumers and reduces "unnecessary" care, studies conducted over the past decade show that increased cost-sharing in fact often has serious adverse effects on beneficiaries.
Increased cost-sharing has been shown to have a direct negative effect on beneficiary utilization of necessary services, appropriate drug use, and health outcomes. Some studies have suggested that cost-sharing increases mortality rates among older people.
Similarly, studies suggest that rising out-of-pocket expenses lead beneficiaries to make tough choices about their health, including not complying with prescribed drug use due to cost, forgoing necessities, or borrowing money to pay for prescriptions.  As a result, higher co-payments backfire and lead to much higher overall costs as beneficiaries put off care and prevention until they need expensive emergency care.
Increased cost-sharing and out-of-pocket expenses disproportionately affect women and minorities, who may forgo critical prevention screenings and skimp on medications due to high costs.  Poor beneficiaries, in particular, are more likely to suffer severe health outcomes including hospitalization and death when faced with higher cost-sharing.
In a recent poll, 86% of those over the age of 65 as well as 89% of those aged 18-64 opposed requiring seniors to pay a larger share of Medicare costs out of pocket.
Medicare Continues To Be A Popular Program
Despite facing rising expenditures for their care, beneficiaries remain confident about the Medicare program for the services and care they depend on. Medicare consistently receives good reviews on issues of trust and satisfaction. In a recent poll, 68% of respondents expressed trust in the Medicare program. In another poll gauging opinions on various types of health coverage, 56% of beneficiaries gave traditional Medicare a rating of 9 or 10 on a 0-10 scale, and 70% reported always getting access to needed care. In a separate poll, 80% of Medicare beneficiaries rated Medicare "totally favorable."
Medicare faces substantial challenges as the overall cost of health care continues to rise and as the population gets older. The Affordable Care Act started to address these changes through payment and delivery system reforms, and through an increased focus on eliminating fraud, waste and abuse. However, proposals to further shift the burden of costs for health care to beneficiaries who are already reeling from the economic downturn and other rising costs are short-sighted, risk the health and wellness of Medicare beneficiaries, and place a further financial burden on them and their families. Strengthening the traditional Medicare program through other cost-saving approaches while avoiding further cost-shifting to beneficiaries is key to ensuring that Medicare remains accessible and reliable for future generations.
For more information contact attorney Vicki Gottlich or Xenia Ruiz in the Center for Medicare Advocacy's Washington DC office.
 The Nation Commission on Fiscal Policy and Reform, The Moment of Truth (Dec. 2010), recommendations 3.3.2, 3.3.3.
 Kaiser Family Foundation, Medicare Spending and Financing, 2011.
 Kaiser Family Foundation. Medicare Chartbook, Fourth edition. 2010. Figure 7.6, available at http://facts.kff.org/chart.aspx?cb=58&sctn=168&ch=1790.
 Administration on Aging, A Profile of Older Americans: 2010, 2011
 Nonnemaker, Lynn, and Shelly-Ann Sinclair. Insight on the Issues: Medicare Beneficiariesí Out-of-Pocket Spending for Health Care, AARP Public Policy Institute. January 2011, available at http://www.aarp.org/health/medicare-insurance/info-02-2011/Insight-I48-oop.html.
 Ibid, p.5-6.
 Kaiser. Medicare Chartbook.. Figure 7.8, available at http://facts.kff.org/chart.aspx?cb=58&sctn=169&p=2.
 Doescher, M. P., P. Franks, J.S. Banthin, and C.M. Clancy. "Supplemental insurance and mortality in elderly Americans: Finding from a national cohort", Archives of Family Medicine 9, pp 251-57. March 2000.
 Kennedy, J., and C. Erb, "Prescription noncompliance due to cost among adults with disabilities in the United States", American Journal of Public Health, pp 1120-24. July 2002.
 Gawande, Atul, "The Hot Spotters", New Yorker Magazine. January 24, 2011, available at http://www.newyorker.com/reporting/2011/01/24/110124fa_fact_gawande.
 Blustein, J. "Medicare coverage, supplemental insurance, and the use of mammography by older women", New England Journal of Medicine: 332 (17), pp 1138-43. 1995.
 Blumenthal, Mark. "Health Care Consumers Give Medicare Higher Marks than Private Plans," National Journal, June 29, 2009, available at http://nationaljournal.com/njonline/mp_20090629_2600.php.
 Department of Health and Human Services, Consumer Assessment of Healthcare Providers and Systems, "What Consumers Say About the Quality of their Health Plans and Medical Care", December 2007, pp 2-18, available at http://www.cahps.ahrq.gov/content/ncbd/Chartbook/HEALTHPLAN07/index.html.
 Kaiser and Harvard, National Survey.
Copyright © 2010 Center for Medicare Advocacy, Inc.