Although Medicare represents a critically important source of health insurance for older Americans, its coverage is not comprehensive. Medicare requires substantial cost-sharing for many covered services, and it does not cover some other health care services, such as outpatient prescription drugs, vision and dental care, and certain preventive services. Most Medicare beneficiaries obtain some type of private or public supplemental coverage to help fill these gaps in Medicare's benefit package. Despite the prevalence of supplemental coverage, many beneficiaries still incur substantial expenses for their health care. This In Brief summarizes key findings from a recent AARP Public Policy Institute study that projects out-of-pocket health care spending by Medicare beneficiaries age 65 and older in 1999.
- Medicare beneficiaries age 65 and older living in the community are projected to spend an average of $2,430, or 19 percent of income, out-of-pocket for health care in 1999 (excluding the costs of home care and long-term nursing home services). Over half of this amount (54 percent) will be spent on health care goods and services. The remainder will be used to pay for premiums for Medicare Part B and either private insurance or Medicare+Choice coverage.
- Prescription drugs account for the single largest component of out-of-pocket spending on health care, after premium payments. On average, beneficiaries are expected to spend as much out-of-pocket for prescription drugs (17 percent of total out-of-pocket health spending) as for physician care, vision services, and medical supplies combined. By contrast, inpatient and outpatient hospital care each account for about 3 percent of older beneficiaries' total out-of-pocket health spending.
- One out of every four beneficiaries age 65 and older is projected to have out-of-pocket health spending of $3,000 or more in 1999.
- Supplemental insurance coverage does not necessarily protect beneficiaries against high out-of-pocket health spending. For example, beneficiaries with Medigap coverage are projected to spend an average of $3,250 on health care, in part because of the cost of Medigap premiums. Those with employer-provided supplemental coverage will spend an average of $2,545.
- Beneficiaries who are enrolled in Medicare+Choice plans, which often require lower cost-sharing and frequently offer supplemental benefits, are projected to spend $1,630, on average, for health care.
- Poor beneficiaries--those with incomes below the poverty level (estimated to be $8,075 for individuals and $10,185 for couples in 1999)--are projected to spend 33 percent of income, on average, out-of-pocket for health care.
- While Medicaid provides substantial financial protection for those enrolled, about half of poor Medicare beneficiaries (1.5 million people) do not receive Medicaid assistance. These beneficiaries will spend about half their income, on average, out-of-pocket for health care.
- AARP Public Policy Issue Brief #IB41 (December 1999). The projections were derived from the Medicare Benefits Model, Version 2.0, developed for AARP by The Lewin Group, Inc.
- Includes Medicare cost-sharing (coinsurance and deductibles), non-covered goods and services (such as prescription drugs), and balance billing by physicians.
- Includes Medigap, employer, and other private insurance premiums.
Written by David Gross and Normandy Brangan, AARP Public Policy Institute
May be copied only for noncommercial purposes and with attribution; permission required for all other purposes.
Public Policy Institute, AARP, 601 E Street, NW, Washington, DC 20049