Medicare Costs Push Financial Limits of Many Older Adults

The typical age of retirement is the US is 62 years, according to research from earlier this year,^1-3 and the age to qualify for Medicare coverage is 65 years⁴—meaning that many older Americans living on a modest fixed income when they need the medical care that comes with older age may find themselves stuck: They don’t have enough income to comfortably have the ability to pay the $1600 Medicare Part A hospital deductible but they still take in too much income to qualify for Medicaid coverage.

This financial precarity is the subject of a cross-sectional study published online today in Annals of Internal Medicine that evaluated the impact of the $1600 Medicare Part A hospital deductible among plan beneficiaries.⁵ The report’s authors defined financial financial precarity as having insufficient funds to pay this deductible.

Using data from the 2018 wave of the Health and Retirement Study—a biennial survey of adults 50 years and older—the authors investigated relationships between 4 financial scenarios and financial precarity in connection with inability to pay the Medicare Part A hospital deductible for 1 hospital stay:

• Scenario 1: checking and savings accounts balances
• Scenario 2: supplemental insurance if enrolled
• Scenario 3: liquid assets (individual retirement account/Keogh account [now known as a qualified retirement plan or HR-10 plan by the Internal Revenue Service⁶], stocks, bonds, certificates of deposit, checking and savings accounts)
• Scenario 4: supplemental insurance if enrolled; liquid assets otherwise

The study’s sample population was 4881 community-dwelling residents—representing a weighted estimated population of 26.6 million Medicare beneficiaries 50 years and older—and there were 9144 making up the general population comparison group with any income.⁵ Their mean (SD) ages were 73.3 (9.0) and 72.5 (8.5) years, respectively; each group comprised a majority of female participants (58.2% and 55%); and most participants were White non-Hispanic (76.4% and 77.5%), had a high school or college or greater ultimate education level (84.2% and 86.8%), had 3 or more chronic conditions (58% and 52.6%), and did not have supplemental insurance (65.9% and 61.3%).

“Supplemental insurance through Medicaid or private plans can shield individuals from these costs,” the investigators wrote. “However, eligibility for Medicaid benefits that cover Medicare cost sharing is limited to those with incomes 100% or less of the federal poverty level and few assets.”

Study Findings

Overall, between 34.6% and 50.7% of the study enrollees were considered to be facing financial precarity. The high end of that range, 50.7%, was seen for scenario 3 (liquid assets), followed by 45% under scenario 1 (checking and savings accounts balances), 39% under scenario 4 (supplemental insurance/liquid assets), and 34.6% under scenario 2 (supplemental insurance if enrolled).

Other factors that were seen at the highest levels among the 50.7% in scenario 3 facing financial precarity were having less than a high school education (76.2% vs 64.8% [the lowest] under scenario 4), having 3 or more limitations on their activities of daily living (74.8% vs 53.5% [the lowest] under scenario 2), having 3 or more chronic conditions (55.6% vs 38.3% [the lowest] under scenario 2), and being in a single-headed household (57.4% vs 39.2% the lowest] under scenario 2).

For the older adults in this study, they have enough income to qualify them out of Medicaid assistance but not enough to comfortably cover their Medicare deductible for hospital stays. | Image Credit: © manassanant-stock.adobe.com

When race and ethnicity were considered, more Black and Hispanic beneficiaries compared with White beneficiaries were seen to face financial precarity under scenario 1 (73.5% vs 76.2% vs 36.2%, respectively) and under scenario 4 (67.7% vs 73.0% vs 29.5%).

Results trended similarly even within the same income range. When falling into the income range of 100% to 140% or less of the federal poverty level, the difference exceeded 30 percentage points, showing fewer White beneficiaries were in a more financially precarious position compared with Black and Hispanic beneficiaries (87.4% vs 54.4%). Further, among all income percentages—from 100% to 120% up through 380% to 400%—Black and Hispanic Medicare beneficiaries faced a higher risk of financial precarity.

Comparing their 2018 data with the 2014 wave of the Health and Retirement Study, the authors also saw that 80.1% of those deemed to be in a financially precarious situation in 2014 were considered the same in 2018.

“These findings have implications for targeting financial assistance to Medicare beneficiaries,” they concluded, adding that many Medicare beneficiaries are “just 1 hospitalization away from depleting their financial reserves and potentially entering a poverty trap.”

Moving Forward

This extreme financial vulnerability can be addressed through several recommended policy reforms, the authors wrote, keeping in mind that someone’s inability to pay their medical bills may not be confined to their present financial situation:

1. Expand eligibility for partial Medicaid benefits by considering persons’ limited income or assets, instead of the current formula that uses both
2. Raise the income and asset cutoffs so beneficiaries could qualify for partial Medicaid benefits to cover Medicare premiums and cost sharing
3. Cap traditional Medicare out-of-pocket costs for persons who don’t qualify for financial assistance or who qualify for not enough assistance to meet their needs.

References

1. Hartman R, Brandon E, Walrack J. What is the average retirement age in the U.S.? US News. March 18, 2024. Accessed October 28, 2024. https://money.usnews.com/money/retirement/aging/articles/what-is-the-average-retirement-age

2. Garber J. What is the average retirement age in the U.S.? Nerdwallet. May 22, 2024. Accessed October 28, 2024. https://www.nerdwallet.com/article/investing/social-security/average-retirement-age-us

3. The average retirement age in the US? Guardian. Accessed October 28, 2024. https://www.guardianlife.com/retirement/average-age

4. Nall R, French M. At what age do I become eligible for Medicare? Medical News Today. June 12, 2024. Accessed October 28, 2024. https://www.medicalnewstoday.com/articles/at-what-age-do-i-become-eligible-for-medicare#:~:text=Medicare%20is%20a%20government%2Dsponsored,are%2065%20years%20or%20older

5. Chatterjee P, Macneal E, Patel SR, Roberts ET. Risk for financial precarity from hospitalization: implications for targeting financial assistance in Medicare. Ann Intern Med. Published online October 28, 2024. doi:10.7326/ANNALS-24-00787

6. Retirement plans for self-employed people. Internal Revenue Service. Accessed October 28, 2024. https://www.irs.gov/retirement-plans/retirement-plans-for-self-employed-people#:~:text=What's%20a%20Keogh%20plan?,the%20term%20is%20seldom%20used