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One-Third at Risk: The Special Circumstances of Medicare Beneficiaries with Health Problems

In this report, a leading expert on Medicare says that policymakers contemplating changes to the entitlement program for the elderly and disabled must take steps to protect the most vulnerable beneficiaries-those with chronic or acute physical or cognitive ailments-from incurring out-of-pocket expenses that are even higher than what they currently bear.

In One-Third at Risk: The Special Circumstances of Medicare Beneficiaries with Health Problems, Marilyn Moon and coauthor Matthew Storeygard of the Urban Institute argue that any major change to the Medicare program-such as requiring coinsurance for home health care-must take into account the steep costs seriously ill beneficiaries already pay for health services.

In 1996, 33 percent of Medicare beneficiaries suffered from either a cognitive or a physical ailment, and nearly 13 percent had both cognitive and physical problems. Sixty percent of all Medicare outlays are incurred by beneficiaries with such health problems. Beneficiaries living below the poverty level, the authors found, were more than twice as likely to have both cognitive and physical difficulties than those with incomes that are more than four times the poverty level (13% vs. 5%). The report also finds that beneficiaries with health problems are burdened with high out-of-pocket expenses.

In general, health maintenance organizations (HMOs) that serve the Medicare population attract healthier individuals than traditional Medicare does. Moreover, beneficiaries with health problems are often unwilling to join a plan that may restrict their choice of plan physicians. Fourteen percent of traditional Medicare enrollees had both physical and cognitive impairments in 1996, compared with 7 percent of Medicare HMO enrollees.

The authors emphasize that if Congress chooses to rely increasingly on private-sector solutions for restructuring Medicare, it will be crucial to implement ""risk adjustment"" mechanisms to assure that private plans are reasonably compensated for enrolling people with health problems-and not overpaid for enrolling those who are healthy. Fee-for-service options to serve those with multiple problems are likely to be needed as well.

Facts and Figures

  • In 1996, Medicare spent $13,205 per beneficiary with both cognitive and physical impairment, compared with $2,920 for beneficiaries with neither problem.

  • In 1996, total out-of-pocket spending by both cognitively and physically disabled Medicare beneficiaries was $3,989, while those with neither condition spent $2,744.

  • Twenty-two percent of Medicare managed care enrollees have either a physical or cognitive problem or both, compared with 34 percent of Medicare fee-for-service beneficiaries.

  • Nearly 37 percent of Medicare beneficiaries over age 85 have physical and cognitive problems; fewer than 4 percent of beneficiaries ages 65 to 69 have comparable limitations.

Publication Details



One-Third at Risk: The Special Circumstances of Medicare Beneficiaries with Health Problems, Marilyn Moon and Matthew Storeygard, The Urban Institute., The Commonwealth Fund, September 2001