One
of the biggest misconceptions seniors have about health care is this: I have
Medicare so don’t need to worry about medical costs in old age. It is a
dangerous mistake.
Not
only does traditional Medicare generally not pay for long-term supports and
services (either at home or in a nursing home), but it doesn’t pay for a
significant chunk of medical treatment. And while most seniors purchase
Medicare Supplement (Medigap) insurance to top up their basic Medicare, even
they may incur significant out of pocket health care costs.
A new report by the
Kaiser Family Foundation finds that in 2016, the average Medicare beneficiary
spent $5,460 in premiums and other out-of-pocket costs in 2016. About $1,000
was for nursing home long-term care. But beneficiaries also paid significant
amounts out-of-pocket for doctors, hospital care, drugs, and dental services.
Among
those living at home, average out-of-pocket spending on premiums and health
care services was $4,519 in 2016.
A major burden
And
those unexpected out-of-pocket costs can be a major burden on seniors. A new survey by the
Harvard TH Chan School of Public Health and the Commonwealth Fund reports that
half of Medicare beneficiaries with a serious illness said they had a “serious
problem” paying their medical care. More than one-third said they used up “all
or most” of their savings. Their most burdensome bills were for prescription drugs,
hospitalizations, and ambulance services.
Not
surprisingly, the Kaiser report found that the oldest Medicare beneficiaries
spent the most out-of-pocket. On average, those 85 and older spent nearly twice
as much as typical Medicare enrollees and much of the difference was for
long-term care costs.
Separately,
my Urban Institute colleague Melissa Favreault estimates that
on average, an older adult in the US will spend about $72,000 on long-term care
expenses over their lifetime. About 70 percent of older adults will need some
personal care before they die, and about half will need help with at least two
daily activities.
Frailty means higher costs
Kaiser
found that Medicare beneficiaries who have chronic conditions or functional
limitations had much high out-of-pocket costs that than those who do not. For
example, those who need assistance with activities of daily living, such as
bathing, toileting, or dressing, spent an average of about $7,500 while those
with no limitations spent $4,500. Those who needed help with three or more of
these activities spent more than $10,000 in 2016.
Higher
income people also had more out-of-pocket costs, though much of that difference
was in the cost of premiums rather than in services. For instance, those with
income between $20,000 and $40,000 spent an average of $6,000 with about $3,500
going to services and $2,500 for premiums. Those with income of $40,000 or more
spent about $6,700, with $3,400 for services and $3,300 for premiums. This
reflects the design of Medicare Part B, where premiums increase with income.
Medigap
can reduce out-of-pocket costs. Kaiser found that those without supplemental
coverage spent an average of $7,473, about $2,000 more (in premiums and service
costs) than those with the extra coverage. While Medigap policies vary widely,
they generally pay many of the co-payments that Medicare Part A and Part B do
not. About 80 percent of Medicare enrollees have some supplemental coverage,
either through Medigap, employer-sponsored insurance, or Medicaid.
An important lesson
Medicare
Advantage (which was not included in this study) also can reduce out-of-pocket
costs. However, MA members may be more limited in their choice of doctors and
hospitals. Some Medicare Advantage plans also
provide limited long-term care services, such as personal aides or
transportation, for those still living at home.
But,
for most Medicare beneficiaries, the lesson here is important: Even if you have
traditional Medicare plus a Medigap policy, you should plan to pay a
significant amount of money for health care each year. As you age, your
out-of-pocket costs will rise. And if you begin to need assistance with
personal activities, those costs will grow even more.
Whether
you are on Medicare now or still are saving for old age, you should include
out-of-pocket medical costs, to say nothing of long-term care costs, in your
retirement budget.
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