AARP DECEMBER 2021 PUBLIC POLICY INSTITUTE Spotlight Medicare Beneficiaries' Out-of-Pocket Spending for Health Care Claire Noel-Miller AARP Public Policy Institute Medicare provides vital health care coverage to millions of adults ages 65 and older and to some younger persons with a disability or end-stage renal disease. The program pays for a portion of the costs for certain inpatient and outpatient health care services and, for some beneficiaries, prescription drug costs.' Yet, contrary to popular belief, Medicare does not cover all health care-related costs. Using the 2018 Medicare Current Beneficiary Survey, this Spotlight highlights the high out-of-pocket spending that many Medicare beneficiaries face. This report details actual health care spending by people enrolled in traditional Medicare' and shows how large the financial burden of health care is for them, based on costs relative to income (see the appendix for methods). It also highlights the need to consider targeted policies to protect people with Medicare from burdensome health care spending, especially as enrollment continues to grow, and outlines some guiding principles for any related Medicare policies. What's Behind Medicare Beneficiaries' Health Care Spending Figures? Several factors explain why many people with traditional Medicare pay significant amounts out of pocket for health care: e Even though the program offers fairly comprehensive coverage, traditional Medicare does not have a limit on beneficiaries' annual out-of-pocket spending.* Consequently, people with traditional Medicare can face high expenses, especially as they age and need more medical services. KEY TAKEAWAYS v¥ Many Medicare beneficiaries face significant out-of-pocket expenses to meet their health care needs. ¥Y 1|n 2018, people with traditional Medicare spent an average of $6,168 on insurance premiums and medical services. Y Onein 10 people with traditional Medicare spent at least $10,816 in 2018, and the top quarter of spenders paid an average of $14,123. v Health care expenses can create a significant financial burden for many Medicare beneficiaries, with half the people with traditional Medicare spending at least 16 percent of their income on health care. Y One in 10 beneficiaries spent at least 52 percent of their income on health care. People with traditional Medicare generally pay a monthly premium for physician (Part B) coverage (in 2018, the standard premium was $134 per month or $1,608 for the year) and for prescription drug (Part D) coverage (the premium varies by plan).* A small share of beneficiaries also pay a monthly premium for inpatient hospital (Part A) coverage (in 2018, the full premium was $422 per month or $5,064 for the year).° See "At a Glance" for more on Medicare Parts A, B, and D. Traditional Medicare requires that beneficiaries contribute to the cost of their care in the form of deductibles, coinsurances, and copayments* (see "At a Glance"). DECEMBER 2021 AT AGLANCE Beneficiaries' Out-of-Pocket Contributions to Their Care under Traditional Medicare Traditional Medicare covers an estimated 39 million' older adults and younger persons with a disability. The program divides benefits into three parts, each with different requirements for out-of-pocket contributions: PartA covers inpatient hospital visits, skilled nursing facility care, some home health visits, and hospice care. People with traditional Medicare are responsible for the following costs when they use Medicare Part A services: ¢ adeductible for hospital inpatient or skilled nursing facility care," * acoinsurance for extended hospital inpatient stays lasting between 61 and 90 days and skilled nursing facility stays lasting between 21 and 100 days," and ¢ the entire cost of their care after their 90th day in the hospital" or 100th day in a skilled nursing facility. Part B helps beneficiaries pay for physician, outpatient, some home health, and preventive services. For Part B services, people with traditional Medicare are responsible for: ¢ anannual deductible,' and * acoinsurance, which is typically equal to 20 percent of the amount Medicare pays health care providers." Part D is the outpatient prescription drug benefit. It is a voluntary benefit delivered through private plans that contract with Medicare. The deductible, copayment, and coinsurance amounts that people with traditional Medicare are responsible for under Part D vary by plan. Glossary Coinsurance: Share of the cost of a covered health care service a person is responsible for, calculated as a percentage of the allowed amount for the service. Copayment: Fixed dollar amount people owe for a covered health care service, usually when they receive the service. Deductible: Amount people owe during a coverage period (e.g., one year) for covered health care services before health coverage begins to pay. 'Centers for Medicare & Medicaid Services (CMS)/Office of Enterprise Data and Analytics/Office of the Actuary, "CMS Fast Facts," November 2020, https://go.cms.gov/2T7fVf0. The deductible covers all inpatient services and related outpatient services for 72 hours before admission, obtained during the first 60 days of each benefit period (a benefit period begins on the day of hospital inpatient or skilled nursing facility admission and ends when the beneficiary has not received any inpatient hospital or skilled nursing facility care for 60 consecutive days). Beneficiaries must pay an inpatient deductible for each benefit period, and there's no limit to the number of benefit periods. In 2018, the Part A deductible was $1,340. 'In 2018, the coinsurance was $335 per day for days 61 through 90 of an inpatient hospital stay and $167.50 per day for days 21 through 100 in askilled nursing facility. " People with traditional Medicare can choose to use their 60 "lifetime reserve days" after 90 days as hospital inpatients. In this case, they incur a daily coinsurance (S670 in 2018) for days 91 through 150. ' The Part B deductible was $183 in 2018. "In addition to the 20 percent coinsurance for health care providers' services, people who get care in an outpatient hospital setting usually owe the hospital a copayment for each service they receive. Under Part B, there is no coinsurance or deductible for the annual wellness visit or for preventive services rated "A" or "B" by the US Preventive Services Task Force. DECEMBER 2021 e Many people covered under traditional Medicare buy private supplemental insurance-such as Medigap or employer- sponsored retiree coverage-to help pay their out-of-pocket costs for Medicare- covered services.' Premiums for such additional insurance can be high. e Beneficiaries pay substantial amounts out of pocket for services and devices not covered by traditional Medicare. Examples include hearing aids, eyeglasses, dental care, and long-term care services. Medicaid, the Medicare Savings Programs, and the Part D Low-Income Subsidy program help offset out-of-pocket expenses for some low-income beneficiaries. For example, the Medicare Savings Programs help people with limited income and resources pay for their Medicare premiums, and, in some cases, Medicare deductibles, copayments, and coinsurance. However, not all low- TABLE 1 income people with Medicare qualify for these programs. In addition, for a variety for reasons-including being unaware of eligibility or because of the application process's complexity-many individuals who do qualify have not enrolled.® Medicare Beneficiaries' Spending for Health Care Out-of-pocket costs are significant for many Medicare beneficiaries. People covered by traditional Medicare paid an average of $6,168 for health care in 2018 (table 1). They spent almost half of that money (47 percent) on Medicare or supplemental insurance premiums. The remainder was out-of-pocket spending for health care services that Medicare covers (26 percent) and for those that the program does not cover (27 percent). Beneficiaries in the top 10 percent for out-of- pocket expenses spent at least $10,816 (table 1).° Medicare Beneficiaries' Out-of-Pocket Spending, Overall and by Beneficiaries' Socioeconomic Characteristics, 2018 Characteristic Total Mean Out-of-Pocket Spending Medicare Medicare Covered Covered Premiums Services Services Out-of-Pocket Spending by Top 10 Percent of Spenders Non- Medicare Medicare Covered Covered Premiums Services Services Non- Total orl $2,929 $1,592 $10,816 Ae mila Age Under 65 $4,206 $1,918 $1,361 $927 | $9,253 $2,430 $3,802 $2,441 65 and Older $6,509 $3,105 $1,632 $1,772 | $11,058 $5,745 $4,080 $2,741 pa Male $5,659 $2,812 $1,504 $1,343 $10,110 $5,546 $3,760 $2,330 Female $6,627 $3,035 $1,671 $1,921 $11,603 $5,612 $4,249 $2,964 White $6,546 $3,035 $1,713 $1,798 | $11,267 $5,640 $4,264 $2,791 Race/ Black $4,423 $2,213 $1,193 $1,017 | $9,426 $3,844 $2,519 $2,330 Ethnicity Hispanic $4,248 $2,359 $1,144 $745 | $9,665 $5,290 $4,249 $1,559 Other $5,317 $3,028 $941 $1,347 | $9,871 $6,236 $3,024 $2,123 Income Up to 200% of FPL $5,096 $2,413 $1,313 $1,370 $9,189 $4,738 $3,069 $2,000 Over 200% of FPL $6,788 $3,228 $1,753 $1,807 $11,717 $5,947 $4,454 $2,855 Source: AARP Public Policy Institute analysis of the 2018 Medicare Current Beneficiary Survey FPL = federal poverty level DECEMBER 2021 Considering that half of Medicare beneficiaries live on less than $26,200 a year" and the average annual Social Security retirement benefit is $16,104," many people in the program face significant out-of-pocket costs for both premiums and non-premium expenses. Beneficiaries' total out-of-pocket spending for health care premiums and services varies widely: the bottom quarter of spenders paid $1,606 on average and the top quarter of spenders paid an average of $14,123 (ata not shown in tables). Out-of-pocket spending for health care varies with beneficiaries' socioeconomic TABLE 2 characteristics, such as age, gender, race/ ethnicity, and income level. Total spending on premiums and health care services rises with age and is generally higher for women, White people, and people with higher incomes (table 1). The amount that people with traditional Medicare spend on health care also varies based on their health status and whether they have a chronic condition (table 2). Perhaps unsurprisingly, for example, the data show that in 2018, traditional Medicare beneficiaries in fair or poor health were especially likely to face significant expenses. They paid an average of $2,971 out of pocket for health care services- significantly more than the amount incurred by Medicare Beneficiaries' Out-of-Pocket Spending by Health Status, 2018 Non- Non- Medicare Medicare Medicare Medicare All covered covered All covered covered services services services services services _ services Excellent/Very good $1,956 $1,158 $798 $4,719 $2,849 $1,981 pelt Reported Good $2,408 $1,591 $817 | $5,796 $4,072 -§2,080 Fair/Poor $2,971 $1,806 $1,165 $6,367 $4,437 $2,624 Hypertension $2,421 $1,655 $766 $5,797 $4,255 $1,960 Congestive heart failure $3,499 $2,671 $829 $8,936 $6,984 $1,770 Stroke $2,983 $2,160 $823 $6,810 $4,643 $2,168 High cholesterol $2,393 $1,572 $821 $5,587 $4,049 §2,085 Non-skin cancer $2,684 $1,824 $860 $6,302 $4,565 $2,482 Rheumatoid arthritis $2,582 $1,717 $865 $6,444 $4,249 $2,170 Chronic Alzheimer's/Dementia $3,210 $2,548 $662 $6,334 $4,535 $1,930 Condition Depression $2,482 $1,676 $805 $6,192 $4,255 $2,513 Nort depressive mental $2,613 $1,676 $937 $6,130 $4,234~- $2,741 Osteoporosis $2,857 $2,020 $838 $6,888 $4,946 $2,349 Parkinson's disease $3,773 $2,971 $802 $5,727 $5,306 $2,741 Emphysema/Asthma/COPD | $2,696 $1,906 $790 $6,016 $4,661 $2,290 Diabetes $2,742 $1,798 $943 $5,977 $4,504 $2,508 Source: AARP Public Policy Institute analysis of the 2018 Medicare Current Beneficiary Survey COPD = chronic obstructive pulmonary disease DECEMBER 2021 TABLE 3 Out-of-Pocket Spending Categories for People with Traditional Medicare, 2018 eel PWV Tey Mel are) al dele (1g (Te-F 242) or 1 Kt el avs Beneficiaries Using Amount Spent by Users Hospital inpatient 16% $479 Hospital outpatient 76% $196 Medical providers 96% $807 Services Covered by Medicare Prescription drugs 92% $703 Home health 13% $448 Skilled nursing facility 4% $2,216 Hospice 2% $0 . . Dental care 54% $924 Services Not Covered by Medicare a Long-term care facility 4% $22,953 Source: AARP Public Policy Institute analysis of the 2018 Medicare Current Beneficiary Survey people in excellent or very good health ($1,956). TABLE 4 People with Parkinson's disease spent more on The Financial Burden of Health Care Spending, < f ° re health care services than those with any other Overall and by Medicare Beneficiaries' - type of illness-an average of $3,773 compared Socioeconomic and Health Characteristics, 2018 with average spending of $2,482 for those with depression, $2,421 for those with hypertension, NS and $2,393 for those with high cholesterol. palais Long-term care facilities, which Medicare Characteristic Health Care does not cover, are by far the most expensive oT e1UI CL / category of out-of-pocket spending (table 3). Under 65 21% The average traditional Medicare beneficiary Age 65 and older 15% who stayed in such a facility spent $22,953 out Male 14% of pocket in 2018. Also substantial that year Gender Female = were the out-of-pocket costs for skilled nursing facilities ($2,216), dental care ($924), clinicians' White 16% services ($807), and prescription drugs ($703). Race/Ethnicity Black . 18% Hispanic 18% Financial Burden by Share of Income Other 13% The significant financial burden of health care Excellent/Very 12% expenses for many Medicare beneficiaries is Self-Reported 8°04 perhaps most evident when considering not Health Good 17% just the total costs as described above but Fair/Poor 20% those costs relative to beneficiaries' resources. . .; . Source: AARP Public Policy Institute analysis of the 2018 Half of the people with traditional Medicare Medicare Current Beneficiary Survey coverage spent 16 percent or more of their income on premiums and health care services combined in 2018 (table 4). DECEMBER 2021 As is the case with spending totals, the financial burden of health care spending varies by health and other characteristics (table 4). For example, half of those who self-reported being in fair or poor health spent 20 percent or more of their income on premiums and health care services; in comparison, those who were in excellent or very good health spent 12 percent or more of their income on premiums and health care. Likewise, traditional Medicare beneficiaries who are under age 65, are women, or identify as Black or Hispanic typically spent a larger share of their income on health care. In 2018, 1 in 10 beneficiaries" with traditional Medicare spent at least 52 percent of their income on health care (figure 1). Spending for health care represents a significant burden for many traditional Medicare beneficiaries with modest incomes, even with the financial help available to them FIGURE 1 Out-of-Pocket Spending as a Percentage of Income, Overall and by Income Level, 2018 Half the beneficiaries spent @ 1in 10 beneficiaries spent 95%+ 52%+ 27%+ 30%+ Oot 16% 11%+ Income over 200% FPL All Beneficiaries in Traditional Medicare Income up to 200% FPL Source: AARP Public Policy Institute analysis of the 2018 Medicare Current Beneficiary Survey Note: Out-of_pocket spending includes health and long-term care expenses; FPL = federal poverty level through Medicaid (figure 1). For example, among people with incomes up to 200 percent of the federal poverty level (FPL), half spent at least 27 percent of their income on health care. In comparison, half of beneficiaries with higher incomes (over 200 percent of the FPL) spent at least 11 percent of their income on health care. Among people with Traditional Medicare in the top quarter of spenders, 13 percent were individuals who also had Medicaid coverage (data not shown). As a result of health care's financial burden, in 2018, 10 percent of traditional Medicare beneficiaries reported delaying care due to cost and 10 percent reported experiencing problems paying their medical bills (figure 2). This was especially true for beneficiaries with lower incomes: 18 percent of those with incomes up to 200 percent of the FPL postponed care because of cost, and 19 percent in that category had difficulties paying medical bills. FIGURE 2 Delayed Care Due to Cost and Problems Paying Medical Bills, Overall and by Income Level, 2018 All Beneficiaries in Traditional Medicare @ Income up to 200% FPL Income over 200% FPL 18% 19% 0, 10% i 6% 10% LJ 4% Delayed Care Had Problems Paying Due to Cost Medical Bills Source: AARP Public Policy Institute analysis of the 2018 Medicare Current Beneficiary Survey DECEMBER 2021 Conclusion The data in this Spotlight highlight the fact that many people with Medicare spend substantial amounts of money on health care. Although the program provides critical coverage to millions of beneficiaries, traditional Medicare does not limit people's out-of-pocket spending and has relatively high cost-sharing requirements. Many traditional Medicare beneficiaries also buy often-costly private insurance in addition to paying for Medicare's premiums and pay substantial amounts for services that Medicare does not cover. Consequently, spending for health care consumes a significant share of many Medicare beneficiaries' incomes. Beneficiaries who live on modest incomes or who are in poor health face especially heavy financial burdens. To make Medicare more affordable and to protect people on Medicare from burdensome health care spending, Congress should: Evaluate how any proposals to redesign Medicare will directly and indirectly affect beneficiaries' out-of-pocket spending, while being fully informed of the level of burden beneficiaries already incur. Ensure people with Medicare who live on modest incomes and those in poor health are protected from excessively high spending. Eliminate enrollment and other barriers to ensure that those who qualify for financial help to afford Medicare premiums and other expenses receive that help. Close gaps in insurance coverage (e.g., dental, vision and hearing services) that lead to substantial expenses for some people with traditional Medicare. Ultimately, a key guiding principle for all policy proposals affecting Medicare should be to ensure that every beneficiary has affordable access to the health care they need. DECEMBER 2021 Appendix: Methods Data This study uses the 2018 Survey File and Cost Supplement of the Medicare Current Beneficiary Survey (MCBS), an annual panel survey of approximately 15,000 respondents. The MCBS sample is representative of Medicare's population of older adults, persons with a disability, and persons with end-stage renal disease, including those who live in long-term care facilities. The analysis excludes people enrolled in Medicare Advantage plans because their personal spending data were not reliable. In most cases, respondents reported how much they paid for premiums and health care services. Interviewers verified respondents' answers with invoices, receipts, explanation- of-benefits forms, and empty prescription containers. In some instances, the information on personal spending came from Medicare claims." When a respondent lived in a long- term care setting, a facility representative answered questions about how much the beneficiary's stay costs. Measuring How Much People on Medicare Pay Out of Pocket for Health Care Medicare beneficiaries' total spending is the sum of the yearly amounts they (or a third party on their behalf) paid for the following: e Premiums for Medicare Parts A, B, and D as well as premiums for supplemental coverage e Services covered by Medicare: deductibles, copayments, coinsurance amounts, and balance billing payments for inpatient and outpatient hospital stays, medical providers, home health care, hospice, and skilled nursing facilities e Services not covered by Medicare: spending for dental care and long-term care facilities (licensed/skilled nursing homes, assisted living, and other residential facilities), including spending for health care services and for room and board e Prescription drugs Measuring What Share of Their Income Beneficiaries Spend on Health Care The share of income spent on health care is the total amount spent out of pocket divided by the respondent's self-reported individual income. When respondents reported incomes for both themselves and their spouse, the analysis assumed that individual income was equal to half the reported figure. Exclusions The MCBS does not have information on how much people on Medicare spend for some health care services that traditional Medicare does not cover, such as vision, hearing, and home-based care. Because these represent additional personal spending, this analysis underestimates how much people with Medicare spend on health care. DECEMBER 2021 aN DO oO fF W 9 For beneficiaries who elect Part D coverage Traditional Medicare is also known as Original Medicare or Fee-for-Service Medicare. In 2018, 66 percent of all Medicare beneficiaries were enrolled in traditional Medicare. Medicare Current Beneficiary Survey spending data for the remaining 34 percent who had a Medicare Advantage plan were not reliable. See Kaiser Family Foundation, "Medicare Advantage," Kaiser Family Foundation Fact Sheet, June 2019, https://bit.ly/2u0n8ab. Unlike traditional Medicare, Medicare Advantage plans limit the total amount that beneficiaries can owe each year. People with incomes above a certain amount pay higher, income-related Part B and D premiums. Most people get premium-free Part A coverage based on their (or their spouse's) work history. Deductibles, copayments, and coinsurance amounts can change annually to reflect fluctuations in the program's costs. The Medicare Access and CHIP Reauthorization Act of 2015 prohibits the sale of Medigap policies that cover Part B deductibles to people who become eligible for Medicare in 2020. K. J. Caswell and T. A. Waidmann, "Medicare Savings Program Enrollees and Eligible Non-Enrollees," Report by the Urban Institute's Health Policy Center for Medicaid and CHIP Payment and Access Commission, June, 2017. https://www.urban.org/sites/default/ files/publication/92546/2001472-medicaid_savings_program.pdf. The average beneficiary in this high-spenders group spent $22,508 for health care in 2018. 10 Gretchen Jacobson et al., "Income and Assets of Medicare Beneficiaries, 2016-2035," Kaiser Family Foundation Issue Brief, April 21, 2017, https://www.kff.org/medicare/issue-brief/income-and-assets-of-medicare-beneficiaries-2016-2035/. 11 The average Social Security retirement benefit in 2018 was $1,342 per month. Social Security Administration, "Annual Statistical Supplement to the Social Security Bulletin: Table 5.A1," 2019, https://www.ssa.gov/policy/docs/statcomps/supplement/2019/5a.pdf. 12 The top decile of out-of-pocket spending. 13 For example, when there was strong evidence that a respondent reported an incorrect number or when a respondent could not remember or show evidence of how much he or she spent. EL Spotlight 1271002, December 2021 © AARP PUBLIC POLICY INSTITUTE 601 E Street, NW Washington DC 20049 Follow us on Twitter @AARPpolicy On facebook.com/AARPpolicy WWW. aar>| r l For more reports from the Public Policy Institute, visit http://www.aarp.org/ppi/. https://doi,org/10,26419/ppi.001 2