Medicare Beneficiaries’ High Out-of-Pocket Costs: The Commonwealth Fund

“More than a quarter of Medicare beneficiaries spent 20 percent or more of income on health care in 2016. Policymakers should consider how proposals to reform Medicare would affect those with poor health or low income,” a Commonwealth Fund analysis finds. “Abstract: Fifty-six million people — 17 percent of the U.S. population — rely on Medicare. Yet, its benefits exclude dental, vision, hearing, and long-term services, and it contains no ceiling on out-of-pocket costs for covered services, exposing beneficiaries to high costs. Goal: To inform discussion of possible changes to Medicare, this issue brief looks at beneficiaries’ out-of-pocket costs by income and health status. Methods: Spending estimates based on the Medicare Current Beneficiary Survey. Findings and Conclusion: More than one-fourth of all Medicare beneficiaries—15 million people—spend 20 percent or more of their incomes on premiums plus medical care, including cost-sharing and uncovered services. Beneficiaries with incomes below 200 percent of the poverty level (just under $24,000 for a single person) and those with multiple chronic conditions or functional limitations are at significant financial risk. Overall, beneficiaries spent an average of $3,024 per year on out-of-pocket costs. Financial burdens and access gaps highlight the need to approach reform with caution. Already-high burdens suggest restructuring cost-sharing to ensure affordability and to provide relief for low-income beneficiaries.

“Introduction For more than 50 years, Medicare has been a stable, trusted source of health insurance that provides basic access and financial protection for elderly and disabled beneficiaries for acute hospital and medical care services.

  • The program has directly contributed to sharp declines in mortality and longer life expectancy for those age 65 and older.
  • It also has succeeded in holding spending per beneficiary nearly flat over the past five years, below private insurance increases.
  • But Medicare’s benefit design also includes high cost-sharing and no limit on out-of-pocket costs. Although prescription drugs were added in 2006, beneficiaries are required to purchase a separate private plan.

“If they want to buy private Medigap supplemental coverage for cost-sharing, they incur significant additional premiums. Even after they pay for supplemental drug and Medigap plans, beneficiaries face the cost of dental, hearing, vision, and long-term services—all excluded from Medicare. For beneficiaries with multiple illnesses or serious functional limitations, out-of-pocket costs can easily add up to thousands of dollars per year. The resulting out-of-pocket costs for health care and premiums can add up to a substantial share of income, especially for those living on modest or low incomes.”  “Medicare Beneficiaries’ High Out-of-Pocket Costs,” The Commonwealth Fund.