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Health Care Costs and Financing

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Medicare reforms that will raise out-of-pocket costs for some elderly people need careful consideration

Medicare costs amounted to $217 billion, 12 percent of the Federal budget, in 1998. The aging of the American population means that these costs will continue to rise. Nevertheless, the authors of a recent study highlight the burden of out-of-pocket costs for some subgroups of the Medicare population. They caution that the potential impact of proposed program changes aimed at cost containment, such as a shift from a "defined benefit" toward a "premium support" model, need careful consideration.

Higher income elderly people who are in good health may have little difficulty absorbing increased out-of-pocket costs. However, the burden of increased out-of-pocket costs would fall most heavily on those with chronic health conditions and without employer-subsidized supplemental coverage or Medicaid, conclude the authors. The study was supported in part by the Agency for Healthcare Research and Quality (HS09566).

Using data from the 1995 Medicare Current Beneficiary Survey, Stephen Crystal, Ph.D., of Rutgers University, and his colleagues analyzed the burden of out-of-pocket expenditures on the elderly. They found that payments to providers and insurance premiums averaged 19.0 percent of income for Medicare beneficiaries alive during all of 1995. However, expenditures were 28.5 percent of income for those in poor health, 22.4 percent for those over age 85, and 31.5 percent for those in the lowest income group, despite Medicaid coverage for some.

Elderly people relying on fee-for-service Medicare only (23.0 percent of income) experienced more burden than those with employer-sponsored coverage (16.1 percent) and those in Medicare HMOs (14.8 percent). Because of the high cost of Medigap premiums, the highest mean burden was experienced by those purchasing Medicare supplemental coverage on an individual basis (25.5 percent). Multivariate analyses found that privately purchased supplemental coverage, as well as functional impairment, number of medical conditions, and self-perceived health were each associated with a higher out-of-pocket burden, while HMO participation was associated with a lower burden. Out-of-pocket expenditures accounted for 15.2 percent of total expenditures for all payers.

Prescribed medication costs accounted for 33.9 percent of overall out-of-pocket payments by elderly people to health care providers. The share was even higher for those in the lowest two-fifths of income—39.6 percent for those in the lowest group and 40.2 percent in the second-lowest group. Dental services accounted for 18.3 percent.

See "Out-of-pocket health care costs among older Americans," by Dr. Crystal, Richard W. Johnson, Ph.D., Jeffrey Harman, Ph.D., and others, in the Journal of Gerontology: Social Sciences 55B, S51-S62, 2000.

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