Age related burden of out-of-pocket health spending
The Burden of Out-of-Pocket Health Spending Among Older Versus Younger Adults: Analysis from the Consumer Expenditure Survey, 1998-2003
By Katherien A. Desmond, M.S., Thomas Rice, Ph.D., Juliette Cubanski, Ph.D. and Patricia Newman, Sc.D.
The Henry J. Kaiser Family Foundation
September 2007
Research has shown that older people spend more out of pocket on health care expenses than younger adults, but there have been only a few comparisons over the past 15 years of the magnitude of this difference or analyses of how the spending burden for younger and older adults may have changed over time. Understanding the extent to which younger and older adults are affected by rising out-of-pocket costs as a share of income may be important in the coming years as policymakers grapple with the challenge of maintaining or improving coverage for the rising numbers of younger adults without health insurance in the U.S., the rising number of people of all ages who are under-insured, and the challenge of making health care affordable for seniors on Medicare. In this paper, we analyze the extent to which health care spending as a share of income has differed among younger adults versus people ages 65 and older, both at a point in time (2003) and over the six-year period from 1998-2003.
Findings
The clear pattern that emerges in both sets of results is that people over age 65 spend far more of their income out of pocket on health care costs than younger adults. Older individuals, on average, spend over 12% of income, compared to only 2% for younger individuals. The pattern for households with two or more people is nearly identical, except that spending in relation to income is slightly higher — 14% for seniors and 3% for younger adults.
Among people age 65 and older, median out-of-pocket spending as a share of income rises with age. Those with Medigap to supplement Medicare spend more on health as a share of income than any other group of seniors, including those with no supplemental coverage at all, which may be driven by high premiums for private Medigap policies.
The figures show clearly that prescription drug spending was a relatively small portion of out-of-pocket health spending for younger and older adults alike. Thus, reductions in out-of-pocket spending that may occur among people over age 65 as a result of the Medicare drug benefit, although helpful, will do little to narrow the gap between the share of income spent out of pocket on health care costs for seniors versus younger people.
Discussion
Our findings document a persistent gap in financial burden between young and old which could have important implications for ongoing policy discussions in several areas, including the generosity of coverage for working age adults, rising health care costs, entitlements and more fundamental questions about the appropriateness of shifting more costs onto consumers.
If, in the future, out-of-pocket spending on health care continues to rise at a substantially faster rate than income, then the burden of health care spending will only increase over time, raising serious concerns about the affordability of medical care, particularly for seniors.
http://www.kff.org/medicare/upload/7686.pdf
Comment:
By Don McCanne, MD
The results of this study are intuitive. Older individuals with greater health care needs and lower incomes spend a greater percentage of their incomes on health care than do younger, healthier individuals with higher incomes. But there are a couple of other extrapolations from this study that are also important.
A significant part of the higher out-of-pocket spending for seniors is the premium paid for Medigap coverage. Medigap policies are perhaps the worst value in the private insurance market. Medical loss ratios (amount spent on health care) are typically 70 percent. Since out-of-pocket spending is a problem for seniors, it would be far better to fold the benefits offered by the Medigap plans into the Medicare program, saving that 30 percent lost to the private insurers. This would not change the incentives to use services since the total coverage would still be the same, except for the very few who have no supplemental coverage of any type. But it would have the benefit of reducing the out-of-pocket expenses which are clearly too high. This is particularly important for the half of the individuals above the median percentages reported in this study.
Also we should not be complacent because the median percent of out-of-pocket spending for younger individuals is relatively low. Most younger individuals are healthy and thus the median value would be expected to be quite low. The problem is that the median is not shifted by the very high skew of the costs of the unfortunate few with major medical problems. It is precisely those individuals with greater medical needs that are being battered by the high out-of-pocket costs in health care.
The out-of-pocket burden is a problem for individuals with significant health care needs, regardless of age. Why do we continue to listen to those who insist that the secret to controlling costs is to make people feel the pain by paying more out-of-pocket for the health care that they actually need? Out-of-pocket spending is already too high and will only get worse under current trends.