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The Financial Burden of Health Care Spending: Larger for Medicare Households than for Non-Medicare Households

Medicare offers health and financial protection to nearly 60 million adults ages 65 and over and younger people with disabilities. However, the high cost of premiums, cost-sharing requirements, and gaps in the Medicare benefit package, combined with relatively low incomes among the Medicare population, can result in beneficiaries devoting a substantial share of their total household spending to health care costs.

This analysis compares health-related expenses as a share of total household spending for Medicare and non-Medicare households, using the 2016 Consumer Expenditure Survey (CE). We estimate how much Medicare and non-Medicare households spent on health care, including premiums, compared to other household spending (e.g., housing, transportation, and food). We also show how health expenses as a share of Medicare household spending varies by age (based on the oldest household member) and poverty level, and changes over time. Because the CE is a survey of the non-institutional population, it excludes out-of-pocket spending on nursing homes and other long-term care facilities, which is a significant share of average out-of-pocket costs for people with Medicare; thus this analysis understates the spending burden for households that incur long-term care facility costs, which may fall disproportionately on Medicare households.

Key Findings

  • Health expenses accounted for 14 percent of Medicare household spending in 2016, on average—more than double that of non-Medicare households (6%) (Figure 1). The higher financial burden for Medicare households is attributable both to lower average total household spending than non-Medicare households ($37,962 vs. $58,810) and higher average health care spending ($5,355 vs. $3,809).

Figure 1: The share of average total household spending on health-related expenses was more than twice as large for Medicare households than for non-Medicare households in 2016

  • Spending on health expenses as a share of Medicare household spending increased with age (based on the oldest household member), as health care needs increase and spending on other items declines.
  • Middle-income Medicare households devoted a greater share of their household spending to health-related expenses than either the lowest- or highest-income Medicare households in 2016.
  • Among Medicare households with incomes below 100 percent of poverty, those with all household members also covered by Medicaid spent a considerably smaller share of household expenditures on health care in 2016 than those where no members were covered by Medicaid (4% vs. 17%, respectively).
  • Nearly 3 in 10 Medicare households spent 20 percent or more of their household spending on health-related expenses in 2016, while only 6 percent of non-Medicare households did so.

Findings

Health expenses accounted for 14 percent of Medicare household spending in 2016, on average—more than double the share of health spending by non-Medicare households (6%).

Spending on health care—for health insurance premiums, medical services and supplies, and prescription drugs—was a larger component of household spending for Medicare households than non-Medicare households in 2016 (14 percent versus 6 percent, respectively) (Figure 1, Table 1). On average, Medicare households devoted roughly similar shares of their total household spending to food, housing, and transportation in 2016 as did non-Medicare households, but a substantially larger share to health care expenses, and a smaller share to other expenses including education, entertainment, and apparel. Spending on health care overall has accounted for roughly the same share of Medicare household spending over time (Table 2).

The higher financial burden associated with health-related expenses for Medicare households is attributable both to their lower average total household spending than non-Medicare households ($37,962 and $58,810, respectively) and their higher average health care spending ($5,355 and $3,809, respectively).

Health spending as a share of average Medicare household spending increased with age in 2016, as health needs increase and spending on other items declines.

Spending on health care as a share of total Medicare household spending varies by the age of the oldest household member. In 2016, households where the oldest member was age 75 or older spent a larger share of their total household spending on health care than households where the oldest member was age 65 to 74, on average. This is related to the fact that health spending tends to increase with age as health care needs rise, while spending on non-health items and overall financial resources tend to decrease. Average health care spending comprised 16 percent of total household spending for households in which the oldest member was age 75 or older, compared to an average of 13 percent for households where the oldest member was age 65 to 74 (Figure 2).

Figure 2: Older Medicare households spent a larger share of their total household spending on health-related expenses than younger Medicare households in 2016

Spending on health-related expenses represented a smaller share of total household spending (10%, on average) for people under age 65 who qualify for Medicare due to having a permanent disability than for older beneficiaries, with lower spending on all types of health-related expenses. Lower spending by younger Medicare households on all types of health-related expenses is likely related to the fact that the rate of Medicaid coverage is higher among younger people with disabilities on Medicare than among those ages 65 and older; in 2013, 46 percent of non-institutionalized Medicare beneficiaries under age 65 also had Medicaid coverage, compared to 12 percent of non-institutionalized beneficiaries ages 65 and older (based on analysis of the 2013 Medicare Current Beneficiary Survey). For people with low incomes and few assets, Medicaid helps pay the cost of Medicare premiums and cost-sharing requirements.

Medicare households with modest incomes spent a greater share of their total household spending on health-related expenses than either the lowest- or highest-income Medicare households in 2016.

Near-poor and middle-income Medicare households faced a greater health care spending burden in 2016 than the lowest- and highest-income Medicare households (Figure 3). For those with incomes between 100 percent and 399 percent of the federal poverty level (FPL), average health care spending as a share of household spending was 15 percent, compared to 12 percent for Medicare households with incomes above 400 percent of the FPL and 13 percent for Medicare households with incomes below 100 percent of the FPL ($11,511/individual and $14,507/couple ages 65 and over in 2016).

Figure 3: Near-poor and middle-income Medicare households spent a larger share of their total household spending on health-related expenses than both lower- and higher-income Medicare households in 2016

While the highest-income Medicare households (400 percent of the FPL or more) devoted a smaller share of their total household spending to health-related expenses than near-poor and middle-income households, their annual spending on health care in dollars was significantly higher ($8,247 on average, compared to $2,614, $4,126, $6,522, and $6,603 for those with incomes of less than 100 percent, 100-199 percent, 200-299 percent, and 300-399 percent of the FPL, respectively).

Medicaid substantially reduces health-related expenses in low-income Medicare households where beneficiaries are eligible for both Medicare and Medicaid, but not all of those with low incomes are covered by Medicaid.

The relatively low share of average total household spending on health care among Medicare households with incomes below 100 percent of the FPL ($11,511/individual and $14,507/couple ages 65 and over in 2016) can be partly attributed to the financial protections provided by Medicaid coverage. Yet not all low-income Medicare beneficiaries are covered by Medicaid, which may be due to asset levels, a challenging eligibility and enrollment process, or lack of awareness about eligibility. This leaves many low-income households exposed to considerable health care costs. Among Medicare households with incomes below 100 percent of the FPL, those with all household members also covered by Medicaid spent a considerably smaller share of household expenditures on health care in 2016 than those where no members were covered by Medicaid (4 percent versus 17 percent, respectively) (Figure 4).

Figure 4: Low-income Medicare households (<100% FPL) with all members covered by Medicaid spent considerably less on health-related expenses than Medicare households with no Medicaid coverage in 2016

Annual dollar spending on health care by Medicare households below 100 percent of the FPL differed even more substantially than the share of household spending depending on whether or not all household members had Medicaid coverage. Average health care spending in 2016 by Medicare households below poverty with no members covered by Medicaid was nearly ten times that of the health spending by Medicare households below poverty with all members covered by Medicaid ($4,473 vs. $467, respectively).

Nearly 3 in 10 Medicare households spent 20 percent or more of their total household spending on health-related expenses in 2016, while only 6 percent of non-Medicare households did so.

Given the higher average spending on health-related expenses by Medicare households than non-Medicare households, it follows that a larger share of Medicare households spent 20 percent or more of their total household spending on health care. Nearly five times as many Medicare households as non-Medicare households devoted 20 percent or more of their total household spending to health-related expenses in 2016 (29% vs. 6%, respectively) (Figure 5). The share of Medicare households with health care spending at this level increased by age, with 4 in 10 households with the oldest member age 85 or older devoting at least 20 percent of their total household spending to health-related expenses, compared to one-fourth (25%) of households with the oldest member age 65 to 74 (Figure 6).

Figure 5: Nearly 3 in 10 Medicare households devoted at least 20 percent of their total household spending to health-related expenses in 2016; only 6 percent of non-Medicare households did so

Figure 6: Four in 10 Medicare households with members age 85 or older spent 20 percent or more of their household budgets on health-related expenses in 2016

Some Medicare households incurred an even greater health care spending burden relative to their total household spending: just over 1 in 10 Medicare households (12%) spent 30 percent or more of their total household spending on health-related expenses, while 4 percent of Medicare households spent 40 percent or more on health care (Figure 7).

Figure 7: Nearly two-thirds of Medicare households spent 10 percent or more of their household budgets on health-related expenses in 2016, while more than 1 in 10 spent 30 percent or more on health care costs

Conclusion

Medicare households spent 14 percent of their total household expenses on health-related expenses in 2016, on average—more than twice than the share among non-Medicare households. The financial burden of out-of-pocket health spending fell disproportionately on older households and those with modest incomes. Low-income Medicare households with no members who are also covered by Medicaid faced a higher health spending burden than low-income households where all members also have Medicaid coverage.

The higher financial burden associated with health-related expenses for Medicare households is attributable both to their lower average total household spending than non-Medicare households ($37,962 and $58,810, respectively) and their higher average health care spending ($5,355 and $3,809, respectively). Even if non-Medicare households spent the same amount on health expenses that Medicare households did, the spending burden would still be higher for Medicare households due to their lower average total household budget. These findings highlight the importance of monitoring health care affordability among Medicare beneficiaries—a majority of whom already live on tight budgets.

Methodology

This analysis uses data from the Bureau of Labor Statistics 2016 Consumer Expenditure Survey (CE). The CE provides data on expenditures, income, and demographic characteristics of consumers in the United States. The CE is a survey of households (“consumer units”), excluding people residing in institutions such as long-term care facilities. A consumer unit consists of any of the following: (1) all members of a particular household who are related by blood, marriage, adoption, or other legal arrangements; (2) a person living alone or sharing a household with others or living as a roomer in a private home or lodging house or in permanent living quarters in a hotel or motel, but who is financially independent; or (3) two or more persons living together who use their incomes to make joint expenditure decisions. Financial independence is determined by spending behavior with regard to the three major expense categories: housing, food, and other living expenses.

The estimates presented in this analysis are averages for demographic groups of consumer units, not per capita estimates, and thus are not comparable to estimates based on other surveys that report per capita estimates, such as out-of-pocket health care spending reported in the Medicare Current Beneficiary Survey. Expenditures by individuals would differ from the average even if the characteristics of the group are similar to those of the individual. Another source of differences between averages reported here and elsewhere is that the spending data are based on survey self-reports and therefore are subject to nonsampling error, including the inability or unwillingness of respondents to provide accurate data.

Juliette Cubanski, Kendal Orgera, and Tricia Neuman are with the Kaiser Family Foundation. Anthony Damico is an independent consultant.
This work was funded in part by the Retirement Research Foundation.


 

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