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Division of Aging and
Adult Services
PO Box 1437
Slot 1412
Little Rock AR 72203

By Herb Sanderson, Director
Division of Aging & Adult Services

This column appears in the April 2001 edition of Aging Arkansas,
a publication of the Arkansas Aging Foundation and the
DHS Division of Aging and Adult Services

Before Medicare, only about half of those in the United States who were age 65 years of age or older had health insurance, writes Marilyn Moon in the New England Journal of Medicine. By 1970, five years after Medicare was established, 97 % of older Americans were enrolled in the program.

The increase in life expectancy in the United States since 1965 is undoubtedly attributable in part to Medicare according to Dr. Moon. "Life expectancy has increased at a faster pace for older persons than the population as a whole. Whereas life expectancy for a 65-year-old man increased by 24.2% between 1960 and 1998, life expectancy at birth increased by only 7.6%."

Increased life expectancy and near universal health coverage. Both are tremendous public policy successes. More good news: The Medicare trust fund was recently pronounced solvent until 2029, four more years than was predicted a year ago. However, beneath this good news are alarming facts.

Low-income single women, age 85, who are in poor health, spend over half their income (51.6%) on out-of-pocket health care costs. In 1965, elderly persons spent an average of about 19 % of their income on health care. That share fell to about 11 % in 1968. Today it is more than 20 %. In other words, older people spend a higher percent of their income on health care today than they did before Medicare was enacted.

Medicare beneficiaries will have to pay substantially more out of their own pockets for health care in the future, according to a new report by researchers at the Urban Institute conducted with support from The Commonwealth Fund. Those with low incomes and health problems will be at even greater risk than average beneficiaries for costs such as Medicare premiums, medical services, and prescription drugs.

In Growth in Medicare and Out-of-Pocket Spending: Impact on Vulnerable Beneficiaries, authors Stephanie Maxwell, Misha Segal and Dr. Marilyn Moon, estimate how expected health care cost increases will affect various groups of beneficiaries under existing program guidelines. "Beneficiaries are often left out of the equation when proposals to change Medicare are considered," said Dr. Moon, senior fellow at the Urban Institute. "These findings suggest that shifting even more expenditures to beneficiaries should not be the total solution to the problem generated by the increase in overall health care spending."

Average out-of-pocket costs today for services not covered by Medicare — including premiums, medical services, and prescription drugs — are $3,142. By 2025, average out-of-pocket costs will rise to $5,248 (in Year 2000 dollars). Even more important is the projection that by 2025, older low-income women in poor health will be hit with out-of-pocket costs of $9,378 (in 2000 dollars) - an increase from $5,969 in 2000.

When out-of-pocket cost increases are calculated as a proportion of income, the disproportionate burden on the most vulnerable is even more striking. Because health care costs will rise faster than the incomes of Medicare beneficiaries, by 2025 all elderly Americans will pay nearly one-third (29.9%) of their income on out-of-pocket health care costs, an increase from about one-fifth in 2000. Older low-income women in poor health are projected to spend nearly three-fourths (71.8%) of their income for health care — or forgo needed care.

"These projections sound a clear warning about the ability of Medicare to keep its promise of protecting elderly Americans from impoverishment," said Karen Davis, president of The Commonwealth Fund. "If we do not address cost burdens and the adequacy of benefits, many beneficiaries — especially those with multiple chronic conditions and those with low incomes — will be forced to make choices between basic necessities such as food or housing, and health care."

The authors note that between 2000 and 2025 the Medicare population will increase dramatically — from about 40 million to 70 million — and the program will have to deal with escalating health care costs. "These pressures on Medicare cannot be resolved by simply shifting costs to beneficiaries. Other revenues are likely to be necessary."