Although a key objective of Medicare is protecting the elderly from financial risk, little research has examined the financial impact of out-of-pocket health care expenditures faced by older adults, particularly near the end of life. A recent study in the Journal of General Internal Medicine looks at the out-of-pocket health care expenditures over the last five years of their lives of 3,209 Medicare beneficiaries from the nationally representative Health and Retirement Study.
The researchers found that the average out-of-pocket expenditures in the five years prior to death were $38,688 for individuals. For couples in which one spouse died, the couple’s combined out-of-pocket health care expenditures averaged $51,030. For 25 percent of the participants in the study, these out-of-pocket health care expenditures exceeded total household assets at the start of the five years examined, and for 43 percent of subjects, these health care expenses surpassed their non-household assets. Among individuals who were survived by their spouse, 10 percent had out-of-pocket health care expenditures that exceeded total household assets at the start of the five years, and 24 percent had health care expenditures that exceeded non-housing assets.
This study also revealed that there was a wide range of out-of-pocket health care expenditures. While the average of the bottom 25 percent of expenditures was only $5,286, the average expenditures of the top 25 percent of out-of-pocket expenses was $78,862. The average for the top 10 percent was $139,077. Eleven percent of single individuals and 9 percent of married households spent over $100,000 during this five-year period.
The range of average annual income from the bottom 25 percent of spenders to the top 25 percent was $22,208 to $38,348. However there was a much broader range of average total assets, from $106,121 for those in the bottom 25 percent of out-of-pocket expenditures and $447,705 for those in the top 25 percent of spenders.
The study also examined the characteristics of the lowest and highest spenders on out-of-pocket health care. Of the bottom 25 percent of spenders, 42 percent belonged to a racial or ethnic minority group, 44 percent had Medicaid insurance coverage, and 84 percent lacked private insurance. In contrast, 91 percent of those in the top 25 percent were non-Hispanic Caucasians. The highest 25 percent of spenders were also likely to be older (an average age of 86). Forty-one percent of those in the top 25 percent were nursing home residents, 61 percent required assistance with activities of daily life, and 32 percent had dementia or a memory-related disease.
This study also examined how cause of death impacted out-of-pocket health care spending at the end of life. They found that depending on cause of death, the average expenditures ranged from a low of $31,069 for gastrointestinal/liver disease to a high of $66,155 for Alzheimer’s Disease. The average costs for individuals with kidney disease and cancer were similar to the average out-of-pocket expenses associated with gastrointestinal/liver disease. Average out-of-pocket costs for individuals with chronic lower respiratory disease, diabetes, cardiovascular disease, infectious disease, and other causes as the cause of death were all around $40,000 over the last five years of life. For individuals with Alzheimer’s Disease or dementia, 56 percent of their expenses went toward nursing home care.
In their discussion of these findings, the authors note that the Medicare enrollees examined here must pay out-of-pocket for their copayments and deductibles, but more importantly, Medicare does not cover a variety of services that are particularly helpful for individuals with chronic disease or a life-limiting illness. These uncovered expenses include eyeglasses, hearing aids, home care services and equipment, and non-rehabilitative nursing home care. The authors also note that it is unclear how the Affordable Care Act (ACA) will affect future out-of-pocket expenses. The ACA originally included the Community Living Assistance Services and Supports Act, which was designed to provide voluntary long-term care insurance that could shield the elderly from catastrophic out-of-pocket costs. However, this component of the legislation was dropped in 2011 due to challenges surrounding the financial viability of such a program.
This study also raises the question of whether those with less wealth are constrained from buying needed health care. Although the average total assets of all participants in the study was $290,995, those who were in the bottom 25 percent of expenses had average household assets that were just 36 percent of the overall average.
Lastly, this study suggests some difficulties related to financial planning for out-of-pocket health care expenses. The range of expenses varies greatly across this nationally representative sample and efforts to plan for health-related expenditures are complicated by disease-related differences in health care expenses.
Kelley AS, McGarry K, Fahle S, et al. Out-of-pocket spending in the last five years of life. Journal of General Internal Medicine (2013) 28(2): 304–309.