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What Do Medicare HMO Enrollees Spend Out-of-Pocket?

As more Medicare managed care plans attempt to restructure benefits and impose cost-sharing on enrollees, understanding how beneficiary out-of-pocket spending is affected becomes especially important. The Fund-supported analysis, What Do Medicare HMO Enrollees Spend Out-of-Pocket?, is among the first to tackle this issue.

In examining Medicare Part B premiums, health plan premiums, and individuals' payment for health services in 1995, authors Jessica Kasten, Marilyn Moon, and Misha Segal of the Urban Institute find that managed care coverage does not necessarily protect the 6.3 million enrollees from high out-of-pocket spending. The burden is particularly steep for poorer and sicker beneficiaries and for certain categories of services.

Noninstitutionalized beneficiaries enrolled in Medicare+Choice, Medicare's managed care option, spent $1,406-or 11 percent of their income-out-of-pocket. Beneficiaries in fair or poor health, however, spent substantially more-$1,771, or 18 percent of their income. Those in very good to excellent health spent 8 percent out-of-pocket on average. HMO enrollment, the study indicates, does not equalize the financial burden between sicker and healthier beneficiaries.

Dental services accounted for the largest share of direct spending on health care (31%). Medical provider services (28%), including physician care, and prescription drugs (25%), represented the next two largest categories of out-of-pocket spending. Though Medicare+Choice HMOs presumably furnish comprehensive coverage for medical provider services, 15 percent of enrolled patients paid for 50 percent or more of this care themselves. Similarly, 31 percent of users paid for 50 percent or more of the cost of their medications out-of-pocket.

Despite the better health of enrollees in Medicare HMOs compared with the Medicare population in general, roughly the same proportion of both groups reported difficulty paying medical bills in 1997. Insurance, it seems, does not fully protect people in poor health in either group. That significant shares of beneficiaries are paying for half of their medical and prescription drug expenses out of their own pockets suggests HMO coverage is not as comprehensive in this area as some believe.

It remains to be seen how recent changes in the Medicare+Choice program will affect out-of-pocket spending. If these changes exacerbate out-of-pocket spending, beneficiary satisfaction with the program may well be compromised.

Facts and Figures

  • A 74-year-old, female Medicare HMO enrollee who does not have other insurance has $1,652 in total annual out-of-pocket costs, representing 13.3 percent of her annual income.

  • Low-income enrollees represent 38 percent of all enrollees reporting above-average health, but 57 percent of those reporting below-average health.

Publication Details



What Do Medicare HMO Enrollees Spend Out-of-Pocket?, Jessica Kasten, Marilyn Moon, and Misha Siegal, The Commonwealth Fund, August 2000