AARP Public Policy Institute INSIGHT on the Issues Medicare Beneficiaries’ Out-of-Pocket Spending for Health Care According to the most recent data available, Medicare beneficiaries spent a median of $3,103 a year of their own money on health care in 2006. Ten percent of beneficiaries—more than 4 million people—spent more than $8,300 a year. The oldest and poorest beneficiaries spent about one-quarter of their incomes on health care. The Medicare program pays for certain Medicare does not cover services such as health care services for adults age 65 and hearing aids, eyeglasses, dental care, and older and younger individuals with most long-term care services. certain disabilities. The program pays a portion of costs for the inpatient and The research found that many Medicare outpatient health care services beneficiaries faced high OOP spending beneficiaries receive. burdens, which varied based on a number of factors (table 1). While Medicare is a vital program that Demographic characteristics such as age, helps older adults pay for needed health income, gender, education, health status, care services, it typically requires and health conditions were linked to significant cost sharing from OOP spending burden. Most beneficiaries. To assess the out-of- beneficiaries (90 percent) had some sort pocket (OOP) spending burden on of supplemental coverage to help defray Medicare beneficiaries, researchers from those added costs, but the remaining the University of Maryland School of 10 percent had no supplemental Pharmacy analyzed data on health coverage. Even with supplemental spending from the most recent Medicare coverage, some beneficiaries could face Current Beneficiary Survey (MCBS), the high OOP costs if they got sick. 2006 Cost and Use File. Unless otherwise noted, all data presented in Overall, in 2006 beneficiaries in the fee- this Insight on the Issues are based on for-service Medicare program spent a this analysis. median of $3,103 OOP on health care services and premiums for supplemental In 2006, beneficiaries paid a $952 health insurance. Many beneficiaries had deductible for each inpatient spell of significantly lower OOP spending—one- illness.1 After 60 days in a hospital or quarter spent less than $1,600 per year, 20 days in a skilled nursing facility, and 10 percent spent less than $400. beneficiaries also paid daily copays, with Unfortunately, a considerable number benefits ending after 90 or 100 days. spent much more; more than 4 million Beneficiaries also faced an annual beneficiaries, or 10 percent of the deductible of $124 for outpatient Medicare population, spent more than services, and paid 20 percent (or more2) $8,300 OOP on health care in 2006. of all costs after that. Furthermore, Medicare Beneficiaries’ Out-of-Pocket Spending for Health Care About the Methods The MCBS is an annual panel survey that asks more than 12,000 beneficiaries about their health care use and spending, health status, and insurance, as well as sociodemographics, income, residence, and other key items. It is representative of the national population of Medicare beneficiaries, and includes people living in long-term care facilities for some or all of the year. We measure OOP health spending as all personal expenditures for medical services, Medicare premiums, and premiums for supplemental insurance. This includes spending for certain long-term care services as measured in the MCBS. Long-term care spending includes room and board costs as well as spending for ancillary health care services for residents of nursing homes, as reported by facility representatives on behalf of survey participants. Medical spending is based on self-reported data verified by invoices, receipts, explanation of benefits forms, and empty prescription containers, supplemented by Medicare claims data. Our analyses exclude people enrolled in Medicare Advantage (MA) plans (19 percent of the Medicare population) during any part of the year because of the difficult of attributing spending to these enrollees. Income is self-reported income for an individual. When respondents report income for themselves and a spouse, we divide it by two to estimate individual income. We report OOP spending at the median and 90th percentile. The median presents the “middle” spending value—50 percent of beneficiaries are above the median and 50 percent are below. Unlike the mean, the median is not swayed by outliers in the data. Medicare’s Part D optional prescription drug benefit began in 2006. Prior to 2006, about three-quarters of beneficiaries had at least some coverage for drugs,3 leaving approximately 11 million beneficiaries without coverage. Enrollment for Part D was open from January through May 2006. About 20 million beneficiaries joined Part D during that time.4 Because of the extended enrollment period, average beneficiary OOP spending for prescription drugs was lower in 2006 than previous years, but may have been higher than when the program became fully functional. These spending totals often accounted Alzheimer’s was roughly 25 percent in for a large portion of beneficiaries’ 2006 (table 2). income, ranging from 11 percent to 25 percent in 2006 (table 1). Demographics: Where Does the Beneficiaries in the middle of that Burden of OOP Spending Fall? distribution spent 17 percent of income on OOP spending (i.e., median OOP Beneficiaries spend significantly more spending as a percentage of income was OOP for health care as they age. In 17 percent). Beneficiaries in poor health 2006, beneficiaries age 85 or older spent typically spent a larger fraction of more than twice as much as beneficiaries income on health care. Median spending under 65 (table 1). Interestingly, as a percentage of income for people beneficiaries under age 65 with with cancer, congestive heart failure, or disabilities had the lowest median 2 Medicare Beneficiaries’ Out-of-Pocket Spending for Health Care Table 1 Out-of-Pocket Spending Depends on Several Factors OOP Spending Total OOP Total OOP Total OOP as a Percentage Spending Spending Spending of Income (Mean) (Median) (90th Percentile) (Median) Overall $4,586 $3,103 $8,383 17% Under 65 3,379 1,779 8,203 13 65–69 3,575 2,754 6,766 13 70–74 4,066 3,253 7,467 17 75–79 4,698 3,517 8,108 18 80–84 5,603 3,849 9,760 22 85+ 7,710 3,932 16,487 24 Men 4,282 2,979 7,899 15 Women 4,832 3,236 8,778 19 White 4,967 3,372 8,825 18 Black 3,066 1,958 6,580 14 Hispanic 3,085 1,792 6,189 15 Other 3,017 2,006 7,151 11 Up to 100% FPL 2,993 1,299 7,268 22 101–150% FPL 4,336 2,665 8,297 25 151–200% FPL 4,717 3,291 8,026 25 201–300% FPL 5,106 3,352 8,640 19 Over 300% FPL 5,236 3,861 8,934 11 Source: University of Maryland analysis of MCBS 2006 Cost and Use File, fee-for-service beneficiaries only. Note: FPL = federal poverty level. Table 2 Out-of-Pocket Spending: The Burden Falls Most Heavily on the Sickest OOP Spending Total OOP Total OOP Total OOP as a Percentage Spending Spending Spending of Income (Mean) (Median) (90th Percentile) (Median) Overall $4,586 $3,103 $8,383 17% Excellent/Very Good Health 3,905 3,106 7,134 15 Good Health 4,707 3,223 8,647 18 Fair Health 5,324 2,952 9,706 19 Poor Health 5,468 3,015 10,741 22 Alzheimer’s Disease 7,670 4,060 15,239 26 Cancer 6,371 4,315 13,110 23 Congestive Heart Failure 5,352 3,705 10,323 25 Coronary Artery Disease 4,933 3,596 9,043 21 No Supplemental Coverage 4,461 2,342 8,521 17 Any Supplemental Coverage 4,605 3,237 8,378 17 Type of Supplemental Coverage Medicaid 3,013 833 8,203 10 Employer-related 4,360 3,237 7,687 15 Other Private (Medigap) 5,650 3,970 9,162 21 Other Public (VA) 4,622 3,355 7,670 27 Source: University of Maryland analysis of MCBS 2006 Cost and Use File, beneficiaries in traditional Medicare only. 3 Medicare Beneficiaries’ Out-of-Pocket Spending for Health Care OOP spending, despite the fact that they spending was much higher in absolute are in the Medicare program because of dollars. serious health care needs. This may be because a higher proportion of Health Status: Showing the beneficiaries with disabilities are on Burden of Illness Medicaid, which pays some of their OOP costs. The burden of OOP spending was also much higher for beneficiaries in poor Women face higher OOP costs than health than for those in excellent health men. Median spending was $3,236 for (table 2). Median OOP spending as a women compared with $2,979 for men, percentage of income for beneficiaries in despite the fact that women were more poor health was 22 percent, compared likely than men to have supplemental with less than 15 percent for those in insurance (83 percent of women have excellent health. Beneficiaries in poor supplemental insurance, compared health were less likely to have with 78 percent of men). The burden on supplemental insurance than those in women was even greater when excellent health (76 percent vs. compared with income—median 82 percent), despite having greater need spending as a percentage of income was for services. 19 percent for women, compared with 15 percent for men. Some illnesses and health conditions led to much higher spending than others Race and ethnicity are also associated (figure 2). Median OOP spending for with different patterns of OOP spending. people with cancer was $4,315, and for Whites had higher median OOP costs patients with Alzheimer’s disease, than other groups, and paid a higher median OOP spending was $4,060. For proportion of total medical costs OOP patients with Alzheimer’s, congestive than other groups. This higher spending heart failure, or cancer, median OOP was due to both higher premium spending as a percentage of income was spending and higher spending on health about 25 percent. care services. Supplemental Insurance Helps Although OOP spending rises with income, the burden of that spending is Because the Medicare program requires greatest for poor beneficiaries. Median significant cost sharing from OOP spending as a percentage of income beneficiaries, most people have for individuals with income below supplemental insurance to help cover 200 percent of the federal poverty level those costs. In 2006, almost nine out of (FPL) was 22 to 25 percent. Individuals ten beneficiaries had some sort of with incomes between 100 and supplemental coverage, either through a 200 percent of FPL shoulder the highest former employer, through Medicaid, burden. Median OOP spending doubles through MA, or by purchasing a for those at 101–150 percent of FPL Medigap plan (figure 3). Women were compared with those below 100 percent more likely than men to have of FPL. supplemental insurance, and those in excellent or very good health were more In contrast, median spending as a likely to have it than those in poor percentage of income for individuals health. This may be due in part to with income above 300 percent of FPL underwriting or lack of guaranteed issue was only 11 percent, though their for Medigap plans under certain circumstances, with sicker beneficiaries 4 Medicare Beneficiaries’ Out-of-Pocket Spending for Health Care Figure 1 Median Out-of-Pocket Spending Varies by Chronic Condition Total out-of-pocket spending (services and premiums) Overall Average $3,103 Rheumatoid Arthritis $3,175 Emphysema $3,253 Hypertension $3,352 Diabetes $3,224 Osteoporosis $3,698 Stroke $3,505 Congestive Heart Failure $3,705 Depression $2,995 Cancer $4,315 Alzheimers $4,060 $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 $4,500 $5,000 Source: University of Maryland analysis of Medicare Current Beneficiary Survey 2006 Cost and Use File. Note: Data reflect beneficiaries in the traditional Medicare program only. Figure 2 Most People Had Supplemental Coverage in 2006 5% 11% 17% 15% 19% 34% None Medicaid Medicare Advantage Employer Related Other Private (Medigap) Other Public Source: University of Maryland analysis of Medicare Current Beneficiary Survey 2006 Cost and Use File. 5 Medicare Beneficiaries’ Out-of-Pocket Spending for Health Care Figure 3 Out-of-Pocket Spending in 2006 was Higher for Those with Supplemental Insurance Compared to Those Without $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 None Any Medicaid Employer Other Private Other Public (Medigap) Source: University of Maryland analysis of Medicare Current Beneficiary Survey 2006 Cost and Use File. Note: Data reflect beneficiaries in the traditional Medicare program only. unable to get coverage or unable to costs, prescription drugs, and medical afford what is offered. providers. Together, these three categories accounted for three-quarters Median OOP health care spending for of beneficiary spending. Note that these dual-eligibles (Medicare beneficiaries figures include only spending on health who are also eligible for Medicaid care services, and do not include the cost because of their low income) was $833. of supplemental or Part D premiums. The top 10 percent of dual-eligible beneficiaries spent at least $8,200. Those However, overall spending numbers with high spending likely spent at least mask what services patients used and part of the year in long-term care what they spent for care. Almost all facilities. Medicaid-covered nursing beneficiaries saw a clinician at least once facility residents are required to in 2006, nine in ten used one or more surrender virtually all their income prescription drugs, and almost three- toward the cost of services, retaining quarters received treatment in a hospital only a small “personal needs allowance,” outpatient department. Only about generally in the range of $30 to $50 per 20 percent were admitted to a hospital, month. As explained in the box on page and far fewer used home health, skilled 1, these costs include room and board as nursing care, or hospice (table 3). well as health care services. Use of services that are not covered by Where Does the Money Go? Medicare was lower. About 40 percent saw a dentist, and about 30 percent used Where does the money Medicare vision or hearing services. Six percent beneficiaries spend on health care go? spent at least part of 2006 in a long-term The largest categories of OOP spending care (LTC) facility. in 2006 were for long-term care facility 6 Medicare Beneficiaries’ Out-of-Pocket Spending for Health Care Table 3 Beneficiary Out-of-Pocket Spending on Health Care Services5 Mean OOP Median OOP 90th Percentile Users of Spending by Spending by OOP Spending Service Service (%) Users Users by Users Medicare-Covered Services Hospital Inpatient 21.6 $766 $0 $951 Hospital Outpatient 72.7 208 4 380 Medical Providers 95.4 684 158 1,434 Prescription Drugs 87.9 711 403 1,513 Home Health 9.1 247 0 1 Skilled Nursing Facility 5.4 949 0 3,939 Hospice 2.0 0 0 0 Non-Medicare-Covered Services Dental 40.1 $617 $213 $1,630 Vision and Hearing 28.7 373 131 564 LTC Facility6 6.2 14,352 7,611 41,937 Source: University of Maryland analysis of MCBS 2006 Cost and Use File, beneficiaries in traditional Medicare only. Among Medicare-covered services, Prescription Drug Spending: Early median OOP spending was highest for Effects of Part D prescription drugs, at $403. While most users had low OOP spending for services, An optional outpatient prescription drug some had high spending. Ten percent of benefit, Medicare Part D, began in 2006. beneficiaries who were admitted to a Beneficiaries had until May to enroll, skilled nursing facility paid at least meaning that some beneficiaries had $3,939 OOP, while 10 percent spent coverage for only part of the year. Prior $1,513 or more for prescription drugs. to 2004, about one-quarter of Ten percent of beneficiaries who saw a beneficiaries had no prescription drug clinician in 2006 had OOP spending of at coverage.7 least $1,434. About 64 percent of those who lacked Spending for non-Medicare-covered coverage for drugs in 2005 enrolled in a services was also high. Among users of Part D plan during 2006.8 The higher a services, median OOP spending was beneficiary’s OOP spending on drugs in highest for LTC facility services. In fact, 2005, the more likely the beneficiary the majority of LTC facility users was to enroll in a prescription drug plan incurred high OOP costs. Median OOP during 2006. Part D enrollees are more spending for users of such facilities was likely than non-enrollees to be $7,611, with 10 percent of users paying institutionalized, minorities, or to have at least $41,937 OOP for room and disabilities; to be in poor health; and to board and health care-related services die during the year.9 About one-third of during 2006. It is likely that these enrollees receive extra help with part D residents were self-financing their costs via the low-income subsidy , which nursing facility stay before eventually greatly minimizes their out-of-pocket qualifying for Medicaid. costs for both plan premiums and prescriptions.10 7 Medicare Beneficiaries’ Out-of-Pocket Spending for Health Care Median OOP prescription drug spending Beneficiaries who suffer from mental for all beneficiaries enrolled in illnesses, Alzheimer’s disease, cancer, or traditional Medicare in 2006 was $338 various forms of heart disease face (median OOP spending for the subset of unusually high spending. Changes in beneficiaries who used prescription benefit design should take these findings drugs was $403). Median OOP spending into consideration and help to alleviate on prescription drugs was higher for spending burdens associated with the beneficiaries who had Part D coverage in most expensive chronic illnesses. 2006 than for those without coverage ($355 vs. $240), but those with Part D Finally, this analysis demonstrates that coverage paid a smaller share of total low-income beneficiaries, including drug costs OOP than those without those who are dually eligible for coverage (25 percent vs. 30 percent). Medicare and Medicaid, still have a very high OOP spending burden. While the introduction of Part D has increased access to prescription drugs, it Policy Options still leaves some with very high out-of- One option for limiting such high levels pocket burdens, particularly those who of cost exposure is a cap on OOP reach the coverage gap and those who spending in the Medicare program. The require drugs or biologics in specialty Congressional Budget Office and the tiers.11 Medicare Payment Advisory Commission have both explored the Conclusions budget impact and other issues associated with a Medicare OOP cap of OOP health care spending presents a $5,250. significant financial burden for many Medicare beneficiaries. While most have A cap on OOP spending for Medicare supplemental coverage, a large services is important, but setting it at proportion of many beneficiaries’ $5,250 would help fewer than 10 percent income still goes toward health care. The of beneficiaries, and would still expose poor, and those in poor health, face the many beneficiaries to a large spending highest burden, even with programs like burden relative to their typically modest Medicaid, which is intended to help incomes. Further, a Medicare cap would these populations. not impact the large share of OOP spending on services that Medicare does Another important finding is that a large not cover. part of the OOP spending burden comes from services that Medicare does not A better option for limiting costs would cover. Medicare does not cover dental, be to combine a cap on beneficiary vision, hearing, LTC facility costs, or spending with an expansion of programs most home-based care costs. intended to help low-income beneficiaries. Despite programs such as While it may not be feasible to extend the Medicare Savings Program, which Medicare coverage to include these helps low-income beneficiaries pay services, policymakers should take these premiums and cost sharing, low-income costs into account when calculating any beneficiaries still face high OOP costs potential program changes, including a relative to income. Raising income limits cap on OOP spending. to help those above 100 percent of FPL, It is also notable that specific illnesses and eliminating asset tests for can lead to very high spending. participation, would reduce the burden these costs impose by allowing more 8 Medicare Beneficiaries’ Out-of-Pocket Spending for Health Care beneficiaries to access the reduced OOP 6 LTC facility spending includes basic room and costs these programs offer. board costs as well as ancillary health spending in nursing homes. Room and board are considered medical expenses when they are a part of the basic charge for nursing homes and similar long-term care institutions, and are 1 counted as such in National Health Expenditures INSIGHT on the Issues A spell of illness begins the day a beneficiary goes to a hospital or skilled nursing facility. The Accounts. spell ends when the beneficiary has not received 7 Safran et al., “Prescription Drug Coverage and any inpatient hospital or skilled nursing facility Seniors”; Rodgers and Stell, The Medicare care for 60 days in a row. If the beneficiary goes Prescription Drug Benefit. into a hospital or a skilled nursing facility after 8 one spell of illness period ends, a new one begins University of Maryland School of Pharmacy and the beneficiary must pay the deductible analysis of MCBS 2006 Access to Care file. again. 9 “CMS Guide to Request for Medicare Part D 2 For services received in hospital outpatient Prescription Drug Event Data,” Version 3.0 (March departments, beneficiaries pay a copayment 2008), http://www.cms.gov/PrescriptionDrug rather than a coinsurance amount. In 2006, CovGenin/Downloads/GuidePartDv3%203-17- beneficiary coinsurance payments accounted for 09%202.pdf. more than 28 percent of total payments for 10 CMS enrollment information, February 2010, services delivered in hospital outpatient http://www.cms.gov/PrescriptionDrugCovGenIn/ department settings. 11 3 For a more detailed discussion of these issues, D. G. Safran et al., “Prescription Drug please see N. Lee Rucker, What Prescription Coverage and Seniors: Findings from a 2003 Drugs Are Medicare Part D Enrollees Using, as National Survey,” Health Affairs 24 (2005): What Cost, and Why Does it Matter? W152–W166; J. Rodgers and J. Stell, The (Washington, DC: AARP Public Policy Institute, Medicare Prescription Drug Benefit: Potential forthcoming 2011). impact on beneficiaries (Washington, DC: AARP Public Policy Institute, 2004). 4 Board of Trustees, Federal Hospital Insurance Insight on the Issues I48, January, 2011 and Federal Supplementary Medical Insurance Trust Funds, 2010 Annual Report of the Boards of Written by Lynn Nonnemaker, PhD, and Trustees of the Federal Hospital Insurance and Shelly-Ann Sinclair Federal Supplementary Medical Insurance Trust AARP Public Policy Institute, Funds (Washington, DC: Boards of Trustees of the Federal Hospital Insurance and Federal 601 E Street, NW, Washington, DC 20049 Supplementary Medical Insurance Trust Funds). www.aarp.org/ppi 5 202-434-3489, mailto:ppi@aarp.org The figures shown in this table and discussed in this section include beneficiaries enrolled in © 2011, AARP. Medicare Advantage. Reprinting with permission only. 9