KFF update on Medicare out-of-pocket spending

How Much Is Enough? Out-of-Pocket Spending Among Medicare Beneficiaries: A Chartbook

By Julliette Cubanski, Christina Swoope, Anthony Damico and Tricia Neuman
Kaiser Family Foundation, July 21, 2014

As part of efforts to rein in the federal budget and constrain the growth in Medicare spending, some policy leaders and experts have proposed to increase Medicare premiums and cost-sharing obligations.  Today, 54 million people ages 65 and over and younger adults with permanent disabilities rely on Medicare to help cover their health care costs.  With half of all people on Medicare having incomes of less than $23,500 in 2013, and because the need for health care increases with age, the cost of health care for the Medicare population is an important issue.

Although Medicare helps to pay for many important health care services, including hospitalizations, physician services, and prescription drugs, people on Medicare generally pay monthly premiums for physician services (Part B) and prescription drug coverage (Part D).  Medicare has relatively high cost-sharing requirements for covered benefits and, unlike typical large employer plans, traditional Medicare does not limit beneficiaries’ annual out-of-pocket spending.  Moreover, Medicare does not cover some services and supplies that are often needed by the elderly and younger beneficiaries with disabilities—most notably, custodial long-term care services and supports, either at home or in an institution; routine dental care and dentures; routine vision care or eyeglasses; or hearing exams and hearing aids.

Many people who are covered under traditional Medicare obtain some type of private supplemental insurance (such as Medigap or employer-sponsored retiree coverage) to help cover their cost-sharing requirements.  Premiums for these policies can be costly, however, and even with supplemental insurance, beneficiaries can face out-of-pocket expenses in the form of copayments for services including physician visits and prescription drugs as well as costs for services not covered by Medicare.  Although Medicaid supplements Medicare for many low-income beneficiaries, not all beneficiaries with low incomes qualify for this additional support because they do not meet the asset test.

Because people on Medicare can face out-of-pocket costs on three fronts—cost sharing for Medicare-covered benefits, costs for non-covered services, and premiums for Medicare and supplemental coverage—it is important to take into account all of these amounts in assessing the total out-of-pocket spending burden among Medicare beneficiaries.  Our prior research documented that many beneficiaries bear a considerable burden for health care spending, even with Medicare and supplemental insurance, and that health care spending is higher among older households compared to younger households.

Key Findings

  • Premiums for Medicare and supplemental insurance accounted for 42 percent of average total out-of-pocket spending among beneficiaries in traditional Medicare in 2010
  • Out-of-pocket spending rises with age among beneficiaries ages 65 and older and is higher for women than men, especially among those ages 85 and older.
  • As might be expected, beneficiaries in poorer health, who typically need and use more medical and long-term care services, have higher out-of-pocket costs, on average.
  • Just as Medicare spends more on beneficiaries who use more Medicare-covered services, more extensive use of services leads to higher out-of-pocket spending.
  • Among beneficiaries in traditional Medicare, those with a Medigap supplemental insurance policy pay more in premiums for this additional coverage, on average, than beneficiaries with employer-sponsored retiree health benefits ($2,166 vs $1,335, on average, in 2010).
  • Analysis of ‘high out-of-pocket spenders’ finds a disproportionate share of certain groups, including older women, beneficiaries living in long-term care facilities, those with Alzheimer’s disease and ESRD, and beneficiaries who were hospitalized, in the top quartile and top decile of total out-of-pocket spending (including both services and premiums).
  • Between 2000 and 2010, average total out-of-pocket spending among beneficiaries in traditional Medicare increased from $3,293 to $4,734, a 44 percent increase.


The typical person on Medicare in 2010 paid about $4,700 out of pocket in premiums, cost sharing for Medicare-covered benefits, and costs for services not covered by Medicare.  Even with financial protections provided by Medicare and supplemental insurance, some groups of Medicare beneficiaries incurred significantly higher out-of-pocket spending than others, which could pose challenges for those living on fixed or modest incomes.  Out-of-pocket spending tends to rise with age and number of chronic conditions and functional impairments, and is greater for beneficiaries with one or more hospitalizations, particularly those who receive post-acute care.



By Don McCanne, MD

This KFF update on the financial burden placed on Medicare beneficiaries shows that average out-of-pocket costs are $4,734 when half of all people on Medicare have incomes of less than $23,500. Although Medicaid supplements Medicare for some low income beneficiaries, destitution is a prerequisite for qualifying for Medicaid. The wealthy should have no problems, but should affordable access to health care be granted only to those with modest or low incomes who must give up what little fungible assets they have been able to accumulate through life?

Another concern in this report is that those with a Medigap supplemental insurance plan pay considerably more in premiums than do those with an employer-sponsored retiree health benefit program. Although Medigap benefits are quite modest, the premiums charged make them one of the worst values in the health insurance market.

Medicare benefits need to be expanded to a level at which Medicare becomes a prepaid health care program. When you need health care, you get it.