Medicare Beneficiaries Can Face Substantial Out-of-Pocket Cost Burdens

As Medicare has no limit capping out-of-pocket costs and supplemental coverage can be expensive, many beneficiaries are spending significant portions of their income out-of-pocket on medical care or premiums, according to a recent report published by the Commonwealth Fund.

The report uses 2 categories of beneficiaries to quantify levels of financial burden: those with a high total cost burden, who spend 20% or more of their annual income on insurance premiums, medical care, copayments, and other healthcare spending; and the underinsured, who spend at least 10% of their annual income on medical care.

According to the report, Medicare’s significant cost sharing requirements and lack of cap on out-of-pocket costs has prompted some to purchase Medigap supplemental coverage. These plans, however, can be costly, as premiums exceed $200 per month in some markets. There are some policies aimed at low-income individuals with scarce assets, like Medicare Savings Programs or Medicaid, but these can still expose enrollees to out-of-pocket spending if, for instance, they need services that Medicare does not cover.

The researchers determined that 27% of all Medicare beneficiaries have a high total cost burden, meaning they spend at least 20% of income on premiums and care. Rates were even higher among those with incomes less than 200% of the federal poverty level (FPL), as around 4 in 10 of these beneficiaries have a high total cost burden. Nearly one-fourth of all beneficiaries are underinsured, as they spend at least 10% of their income on medical care. Following a similar pattern to that of the total cost burden, those with incomes less than 200% FPL had higher rates of underinsurance at about 1 in 3.

Furthermore, the researchers found that having low income and poor health exacerbated the likelihood of being underinsured or experiencing high cost burden. For instance, around 29% of those with 3 or more chronic conditions had a high cost burden, but this rate jumped to 42.4% among those with incomes less than 200% FPL and 3 or more chronic conditions or functional limitations.

The extent of the out-of-pocket burden varied based on a number of factors, like health status or supplemental coverage. For instance, the beneficiaries with only Medicare coverage had an average of $5374 in out-of-pocket costs, which was more than double the spending for those who had supplemental coverage. The Medicare-only beneficiaries with 3 or more chronic conditions and/or functional limitations spent over $7000 each year on out-of-pocket costs.

Delving deeper into what constituted these healthcare cost burdens, the report indicated that they often reflect the limited services covered by Medicare, as nearly 40% was spent on dental services or long-term care, which are not included in Medicare benefits. Medical and hospital cost sharing also made up some of the burden, especially for beneficiaries living in the community instead of a facility, who spent 45% of their out-of-pocket costs on Medicare Parts A and B.

According to the report authors, these findings show that Medicare enrollees are subject to considerable cost burdens and unmet healthcare needs, which “illustrate the need for caution” when reforming Medicare policy. They acknowledge that the program itself faces significant financial pressure as the eligible population grows, but write that further protection is needed for vulnerable lower-income beneficiaries living with chronic diseases.

“As the single largest purchaser of health care in the country, Medicare policies directly influence insurance and care systems across the country,” the report concluded. “With a projected one-fifth of the population on Medicare by 2024, keeping beneficiaries healthy and financially independent is important to beneficiaries, their families, and the nation.”