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Medicare Beneficiaries Already Burdened by Health Costs, Kaiser Reports Say

By Jane Norman, CQ HealthBeat Associate Editor

Lawmakers may be eyeing public programs like Medicare for cuts in their debt ceiling talks, but beneficiaries already are shouldering a substantial portion of their own health spending.

That's the conclusion of a series of reports issued by the Kaiser Family Foundation on Tuesday that try to put the faces of beneficiaries back in a debate focused more on the larger puzzle of how to extract more than $2 trillion in savings from the federal budget. Congress has an Aug. 2 deadline to raise the debt ceiling.

The picture of Medicare enrollees painted by Kaiser is of a population in modest circumstances. Half of all people on Medicare had incomes below $22,000 in 2010; fewer than 1 percent had incomes of more than $250,000, Kaiser says in reports based on government data and economic modeling. Among the findings:

  • Half of all beneficiaries have less than $2,100 in retirement account savings, such as IRAs, and half have less than $31,000 in other financial assets such as bank accounts. Five percent have combined savings of more than $1 million. White seniors have significantly more in savings than black seniors.
  • Half of the people on Medicare had less than $60,000 in home equity in 2010. The average home equity was about $132,000 in 2010.
  • Medicare beneficiaries spent three times as much of their income on health expenses than people not on Medicare, Kaiser found. For Medicare recipients, that amounted to 15 percent of their household budgets.
  • Much of that money goes to the cost of health insurance premiums, including premiums for Medicare Part B and Part D and supplemental insurance coverage. Other big health costs are long-term care that's not covered by Medicare, medical providers and supplies and prescription drugs.
  • Health spending as a share of average Medicare household spending increases with age, rising for seniors 80 and older. It's also high for people in poor health or with low or modest incomes who aren't poor enough to qualify for Medicaid.

The health care law (PL 111-148, PL 111-152) contained some provisions aimed at helping people on Medicare, including the closing of the Part D prescription drug "doughnut hole." But it's important to fully assess the impact of Medicare cuts on out-of-pocket spending by seniors who already live on tight budgets, says one report, which was based on data from 1997 to 2006. One in four beneficiaries spent 30 percent or more of their income on health expenses in 2006, and one in 10 spent more than half of their income paying for health care, the report said.

With household incomes rising more slowly than health care costs, out-of-pocket expenses consume more and more of seniors' incomes, Kaiser says. Supplemental coverage helps, but the cost of those premiums is rising as well.

"As policymakers consider options to rein in federal spending, including proposals that would increase costs for some or all people on Medicare, this analysis raises important questions about how much—and how much more—of their incomes Medicare beneficiaries can be expected to spend on their health care," the report says.

At a panel discussion sponsored by Kaiser, health expert Gail Wilensky, who served under a Republican president as head of the agency that preceded the Centers for Medicare and Medicaid Services, said the notion of trying to stabilize Medicare for the long-term has been around long before the debt ceiling discussions. Rising health care costs and the aging baby boomer population have made it worse, she said.

The health care law didn't go far enough in making changes in Medicare that would revamp the delivery system, she said, and it's questionable whether the law's Medicare provider cutbacks will ever be enacted.

Yet the notion of spending reductions was embraced in a "not very explicit way" by Democrats in the health care law and by House Republicans "in a very explicit way" in their budget, Wilensky said. That budget, authored by Budget Chairman Paul D. Ryan of Wisconsin, proposed that people younger than 55 be required to pick their insurance from a menu of alternatives, using a set sum allocated by the government.

Wilensky pointed to the creation of the Independent Payment Advisory Board as Democrats' indirect way of demanding cuts.

"What has happened is that both parties have just embraced this very different concept of Medicare without talking about if we were going to limit spending, how should we do so," she said.

Wilensky mentioned a "modified Ryan plan" and the Federal Employees Health Benefit Program in the same breath—prompting a rebuke from another panelist, Bruce Vladeck, a senior adviser to Nexera Inc. who was in charge of Medicare for President Bill Clinton.

"It's just one of those sound bites that distorts the debate. I'm sorry. It's not at all alike," Vladeck said.

Wilensky said she'd back a modified Ryan plan but added, "I do not support the Ryan plan as was stated."

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