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Health Care Costs and Financing

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Medicare Catastrophic Coverage Act has not reduced financial strain or increased independence among the elderly

During the 1970s and 1980s, nursing home care quickly drove many elderly men and women into poverty. The spouse who continued to live in the community often was left with little to live on when his or her mate required nursing home care. Out-of-pocket costs for nursing home care often were greater than income, and the copayment for care received under Medicaid was only slightly less than income. The 1988 Medicare Catastrophic Coverage Act (MCCA) was passed to protect community spouses from spiraling down to poverty. Unfortunately, the MCCA did not accomplish its goal, according to the results of this study.

The study was supported by the Agency for Healthcare Research and Quality (HS09515) and conducted by researchers at the University of North Carolina at Chapel Hill. They used longitudinal data from the National Long-term Care Survey and exploited the differential effect of the MCCA on single people and married people, as well as cross-State variation in Medicaid laws, to test the long-run effect of the MCCA on spousal impoverishment and elderly behavior. Prior to 1988, the institutionalized spouse could keep a maximum of about $2,000 in nonhousing assets, depending on the State. All jointly owned assets counted toward the limit, although those held solely by the community-dwelling spouse were exempt.

The MCCA allows most couples to retain up to about $120,000 in nonhousing assets, but all spousal assets have to be combined and divided equally. As before, all of the institutionalized spouse's share of the assets must go toward nursing home payment. The community spouse can keep at least $12,000, but no more than $60,000, with the excess also going toward nursing home care. For example, a couple with $170,000 in assets could keep $60,000 (for the community spouse) plus $2,000 (for the institutionalized spouse); the nursing home would get $108,000 before Medicaid would pay anything.

In reality, the MCCA had no effect on income and no significant effect on the probability of living independently, receiving formal home health care, or obtaining other help. An alternative approach might be to provide paid help directly to the community-dwelling spouse. Single people were not affected by the MCCA.

For more details, see "The long-run effect of the Medicare Catastrophic Coverage Act," by Edward C. Norton, Ph.D., and Virender Kumar, M.A., in the Summer 2000 Inquiry 37, pp. 173-187.

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