June 1, 2005
Michelle M. Doty, Sara R. Collins, Cathy Schoen, Alyssa L. Holmgren, Karen Davis, Sabrina K. H. How
Will You Still Need Me? The Health and Financial Security of Older Americans, Sara R. Collins, Ph.D., Karen Davis, Ph.D., Cathy Schoen, M.S., Michelle M. Doty, Ph.D., Sabrina K. H. How, and Alyssa L. Holmgren, The Commonwealth Fund, June 2005
Annual growth in U.S. health care costs is outstripping yearly increases in workers' wages by a substantial margin. Employers are coping with rising costs by sharing more of their expenses with their employees or dropping coverage altogether. The combination of rising out-of-pocket health costs and sluggish wage growth threatens workers' ability to save for retirement. This is particularly true for those over age 50, whose per-capita health care expenditures are more than twice that of workers in their 20s. In addition, the continuing erosion of retiree health coverage in companies across the country means that health costs could claim an increasingly large share of older adults' savings after retirement.
The Commonwealth Fund Survey of Older Adults, conducted from September to November of 2004, presents new information on the health and financial security of adults ages 50 to 70. The survey finds widespread support among older adults for policies that would help them save for their future health and long-term care costs that are not covered by Medicare. It also finds broad support for policies that would allow them to buy into Medicare before age 65.
Support for these options likely reflects the high rate of chronic health problems in this age group and the fact that many older adults are exposed to high medical costs. Older adults too young to qualify for Medicare who are uninsured or have coverage on the individual market are particularly at risk of high out-of-pocket costs. Majorities of older adults with Medicare say that becoming eligible for Medicare was very important. Compared with those with other forms of coverage, Medicare beneficiaries say they have an equal or greater choice of doctors, fill out less paperwork, have fewer problems getting their insurance to pay their doctors, and are equally or more satisfied with the quality of their health care and confident in their ability to receive the best medical care available when needed. However, the survey also finds evidence of financial vulnerability among Medicare beneficiaries, stemming from Medicare's cost-sharing requirements and lack of coverage for high-cost services such as long-term care.
The following are some of the key findings of the survey:Older Adults Voice Strong Support for New Medicare Health Accounts and Early Access to Medicare
Medicare Beneficiaries Are Interested in Consolidating Their Coverage
- A substantial majority of respondents, 69 percent, said they would be interested in having 1 percent of their earnings deducted from their paychecks and placed into a Medicare account, which they could then use to pay for long-term care or other expenses that are not covered by Medicare. There was broad-based, majority support across income, region of the country, health status, and political affiliation. Interest was highest among adults in their early 50s (Figure ES-1).
- Nearly three-fourths (73%) of adults ages 50 to 64 said they would be very or somewhat interested in receiving Medicare before age 65. Majorities of older adults across the income spectrum expressed support for this option (Figure ES-2). A majority would be willing to pay at least a small premium to participate but the benefit would likely have to be subsidized to facilitate participation.
Limited Support for Elite Networks and Medical Homes
- Half of Medicare beneficiaries (50%) said they would be very or somewhat interested in paying an extra $100 per month to have all their health services, including prescription drugs, covered under one plan.
Older Adults with Individual Coverage Have High Out-of-Pocket Costs
- Half of adults (50%) ages 50 to 70 expressed interest in participating in an arrangement in which Medicare or their insurance plan charged them a lower monthly premium if they agreed to go to doctors that provided the best care at the lowest cost, even if it meant they had to change their doctors. Only a third (34%) of those 65 to 70 expressed interest.
- Just over one-third (36%) of all respondents agreed that Medicare or their insurance plan should require them to sign up for a doctor that would be their regular source of care. Those ages 65 and older were the most opposed to the idea: less than a quarter (24%) agreed that Medicare should require them to have a regular doctor.
Exposure to Health Care Costs Creates Access and Medical Bill Problems
- More than two of five (42%) older adults with individual coverage have deductibles higher than $1,000. Nearly a quarter (24%) must meet annual deductibles of $2,000 or more. Just 2 percent of Medicare beneficiaries and 7 percent of older adults with employer-based coverage face deductibles of greater than $1,000 a year.
- More than half (54%) of older adults with coverage on the individual market spend $3,600 or more annually on their health insurance premiums and a quarter (26%) spend $6,000 or more. In contrast, only 17 percent of older adults with employer coverage and 6 percent of those with Medicare spend $3,600 or more.
- Using a measure of "underinsurance" based on whether people have high out-of-pocket costs (excluding premiums) and deductibles relative to their income, 32 percent of older adults with coverage purchased in the individual market were underinsured. This was a much higher rate than that of older adults with employer coverage (5%) or Medicare (17%).
The Importance of Becoming Covered by Medicare
- Nearly a quarter (24%) of older adults reported that they had failed to get health care services because of cost, including not filling a prescription, not seeing a doctor or specialist when needed, or skipping a medical test or follow-up treatment. Fifty-seven percent of uninsured older adults and nearly a third (32%) of those with individual coverage reported at least one such access problem (Figure ES-3).
- More than one-third (35%) of older adults either had a problem paying their medical bills in the last 12 months or were paying off medical debt they had accrued over the last three years. Medical bill problems included having difficulty or not being able to pay bills, being contacted by a collection agency concerning outstanding bills, or making significant life changes in order to pay bills. Those who were uninsured, purchased coverage on the individual market, or had Medicare had the highest rates of problems (Figure ES-4).
Majorities of Older Adults Are Concerned About Their Future Health and Financial Security
- One-quarter (24%) of Medicare beneficiaries reported that they were uninsured just before they entered Medicare. Among adults 50 to 64 who are eligible for Medicare because of a disability, more than two of five (41%) said they were uninsured just before becoming beneficiaries.
- A substantial majority (71%) of Medicare beneficiaries ages 50 to 70 said that becoming eligible for Medicare was very important. Those who were disabled or lived in low-income households perceived Medicare eligibility to be particularly essential.
- Older adults with Medicare rate their overall health insurance coverage as high as those with employer-based coverage and much higher than those with coverage purchased through the individual market.
- Among Medicare beneficiaries who were insured before becoming eligible for the program, about three of five (59%) said that their overall insurance was about the same as it had been before; one of five (23%) reported that their coverage was better. Three-quarters (75%) said that their choice of doctors was unchanged. More than half (55%) reported that they spent about the same amount of time on paperwork and 30 percent said that they spent less time on paperwork.
- Medicare beneficiaries and older adults with employer coverage are the most satisfied with the quality of the health care they receive and express the most confidence in getting the best medical care available when they need it.
- Nearly half (48%) of adults ages 50 to 70 have retirement savings of less than $50,000 and nearly two of five (38%) have savings of less than $25,000. Lower-income adults have the most limited savings. Among adults ages 50 to 70 with household incomes under 200 percent of poverty, 80 percent had accumulated savings of less than $25,000.
- Nearly two of five (39%) adults ages 50 to 70 said they were not too confident or not at all confident they would have enough income and savings to live comfortably in retirement.
- More than three of five (63%) adults ages 50 to 70 said they were very or somewhat worried they might not be able to afford needed medical care in the future. Seventy-one percent said they were very or somewhat worried that they would not be able to afford health insurance.
Older adults without adequate health coverage are at risk of suffering adverse health events from skipping needed care. They are also at risk of spending large shares of their income on out-of-pocket costs and accumulating medical debt. Poor health can erode older adults' ability to participate in daily activities and accumulate income prior to retirement. Moreover, if older adults postpone or do not receive essential care for chronic health conditions such as diabetes, arthritis, or high blood pressure, they are at risk of entering the Medicare program in deteriorating health and with much more costly medical conditions.
Yet, older adults are becoming less rather than better protected. According to the most recent U.S. Census data, the number of uninsured adults ages 50 to 64 climbed from 5.5 million in 2000 to 6.4 million in 2003. In addition, the percentage of large firms offering retiree health benefits dropped from 66 percent in 1988 to 36 percent in 2004. Many companies that still offer benefits are making them less generous. Hewitt Associates estimates that medical costs can add up to an estimated 20 percent of pre-retirement income for workers who retire at age 65 without employer health care benefits. Early retirees without employer coverage can expect to spend an estimated 40 percent of pre-retirement income on their medical expenses. While the new Medicare prescription drug benefit will offset some of those costs for beneficiaries, older adults without retiree health benefits will continue to see a portion of their retirement income go toward health care costs.
Several targeted investments could improve the health and financial security of older adults. The survey shows strong interest among older adults in opening a Medicare health account to set aside income for long-term care and other health care expenses that are not covered by Medicare. In addition, a large majority of adults ages 50 to 64 is interested in participating in the Medicare program before the age of 65. To facilitate participation, subsidies or tax credits for a buy-in could be linked to income such that those with household incomes of less than 200 percent of poverty would pay no more than 5 percent of their incomes and those with higher incomes would pay no more than 10 percent. Finally, eliminating the two-year waiting period for the disabled in the Medicare program would directly address the financial hardship of that population so clearly evident in this survey.
Cutting back on the health care of older adults through the erosion of employee and retiree health benefits will serve only to worsen the health and financial status of older adults and magnify the financing issues currently looming before Medicare. Instead, targeted investments in their health care would likely make strides toward a more robust economy and a sustainable Medicare program.