High out-of-pocket
health care costs may have serious repercussions for older people and their
families. This paper examines the impact of health problems at older ages on
out-of-pocket health care spending and other types of expenditures. The results
show that medical conditions increase health spending, particularly for households
ages 51 to 64, but do not generally reduce nonhealth spending. Health conditions
do, however, reduce nonhealth spending for low-income households ages 51 to
64, suggesting that holes in the health safety net before the Medicare eligibility
age force some low-income people to lower their living standards to cover medical
expenses.
Introduction
The possibility of serious
illness poses significant financial risks for older adults. Although virtually
all Americans ages 65 and older are covered by Medicare, cost-sharing requirements
and the exclusion of certain services often lead to large out-of-pocket medical
expenses, especially for those who lack private supplemental insurance health
benefits. Older adults under age 65, who are not eligible for Medicare unless
they are disabled, may face more serious financial risks because there is no
guarantee that they will have health insurance. In fact, 12 percent of Americans
ages 55 to 64 were uninsured in 2004 (Johnson 2007).
High out-of-pocket health
care costs may have important repercussions for older people and their families.
If their incomes are not high enough to cover these expenses, older adults with
health problems may have to deplete their savings, turn to family and friends
for financial help, or forgo necessary care. Or they may be forced to reduce
their consumption of other goods and services to pay their medical bills.
Relatively little is known
about how health problems affect economic well-being. Widespread anecdotal evidence
suggests that some older Americans are forced to choose between buying medications
and paying for rent or groceries. There are no careful empirical studies, however,
that measure the pervasiveness of the problem. Several studies have documented
the relatively large share of income that certain subsets of the older population
devote to health care (Crystal et al. 2000; Goldman and Zissimopoulos 2003;
Maxwell, Moon, and Segal 2001), but we do not yet know how much these costs
reduce living standards.
This study examines the
impact of health problems at older ages on out-of-pocket health care spending
and other types of expenditures. The effects might be minimal if older people
are generally well-insured or have substantial financial resources. For example,
wealthy older adults hit with high out-of-pocket health care costs could dip
into their savings to cover medical bills without having to reduce their standard
of living. Otherwise, the onset of serious health problems could force many
people to divert large shares of their spending to health care and away from
other goods and services. The analysis uses a unique data source that includes
information on both consumption patterns and specific medical conditions, and
estimates models of different types of household expenditures. We examine spending
patterns separately for households that are ages 65 and older and those that
are ages 51 to 64. The impact of health problems on spending patterns may be
especially strong for those in the younger age group, most of whom do not yet
qualify for Medicare, because some of them are uninsured or underinsured.
The results suggest that
high out-of-pocket health care spending does not generally force older Americans
to reduce their living standards. However, low-income adults in their fifties
and early sixties appear to curtail their nonhealth spending in response to
high health care expenses when they develop multiple medical conditions. These
findings suggest that Medicare and Medicaid generally protect older adults from
high out-of-pocket health care costs, but that important gaps in the health
care safety net exist for older people who have not yet reached the Medicare
eligibility age of 65.
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