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Although Medicare covers nearly all Americans age 65 and older, premiums, cost shares, and holes in the benefit package raise concerns about seniors' ability to pay for their health care. This brief, based on newly released data, shows that Medicare Part D, introduced in 2006 to cover prescription drugs, helped reduce out-of-pocket costs. The majority of older adults devoted less than one-eighth of their incomes to health care in 2006. However, nearly half of low-income seniors spent more than 20 percent of their 2006 incomes on health care. Medical costs for seniors should figure into the health-reform debate.
Affordable health care is a growing concern for
many older Americans. Although Medicare covers
nearly all adults age 65 and older, premiums,
deductibles, copays, and holes in the benefit package
leave many older Americans with substantial
out-of-pocket expenses. Fidelity Investments
(2009) estimates that a 65-year-old couple retiring
in 2009 can expect to pay about $240,000 out of
pocket for health care over the rest of their lives.
With health care costs expected to grow further
(Sisko et al. 2009), assessments of retirement
income adequacy must account for these expenses.
This brief examines the distribution, composition,
and financial burden of out-of-pocket health
care spending for Americans age 65 and older in
2006 and shows how outcomes have changed
since 2001 and 2005. Spending patterns differ in
2006 because Congress introduced Medicare
Part D that year, adding drug coverage to the
program. The lack of drug coverage was the most
glaring hole in the Medicare program, with drug
costs accounting for much of seniors' out-of-pocket
spending (Crystal et al. 2000). About one-quarter
of Medicare beneficiaries age 65 and older who
were not in nursing homes lacked supplemental
drug coverage in 2003 (Federal Interagency Forum
on Aging-Related Statistics 2006). Adding pharmaceutical
coverage to Medicare could significantly
lower out-of-pocket health care spending,
but the benefit's design might limit protections.
The standard Part D plan temporarily suspends
coverage when beneficiaries' annual spending
exceeds a certain level, and does not resume coverage
until their out-of-pocket drug costs become
The study's data come from the Medical
Expenditure Panel Survey (MEPS), a nationally
representative household survey sponsored by
the Agency for Healthcare Research and Quality,
that collects detailed information on health care
expenditures. The sample is restricted to noninstitutionalized
The results show that the majority of older
Americans devoted less than one-eighth of their
incomes to health care in 2006, with premiums
consuming the largest share of their health care
dollars. However, nearly half of low-income
seniors (with incomes below twice the federal
poverty level) spent more than $1 out of every $5
of their incomes on health care, even after the
introduction of Medicare Part D. Policymakers
considering reforming the retirement income system
must keep in mind the difficulties that many
low-income older adults face covering their medical
expenses. Medical costs for seniors should
also figure into the health-reform debate.
(End of excerpt. The entire brief is available in PDF format.)
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