Nearly half of all Medicare beneficiaries lack financial resources, cannot afford a single hospital stay

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Medicare beneficiaries are faced with substantial cost sharing for most inpatient care, outpatient services, and prescription drugs. Patients with comorbid, chronic conditions are especially at risk for high out-of-pocket costs, and general economic hardships. Research published in Annals of Internal Medicine determined that 34.6% to 50.7% of Medicare beneficiaries with modest incomes are at risk for financial hardships, and unable to afford a single hospital stay.

The study estimates how financially vulnerable people are across the U.S. by examining whether they have enough liquid assets to cover the deductible. They look at four different financial scenarios, considering balances in checking and savings accounts, total liquid assets (with a reserve set aside for future expenses and living costs), and whether supplemental insurance is available. The population of financially precarious Medicare beneficiaries was found to disproportionately include Black and Hispanic beneficiaries, in addition to those with lower levels of education, and those with multiple prior chronic conditions.

“Our findings suggest that a large proportion of Medicare beneficiaries are just one hospitalization away from depleting their financial reserves and potentially entering a poverty trap,” the authors of the study wrote. “Certain subgroups of beneficiaries may be particularly at risk from such financial shocks, including Black and Hispanic beneficiaries… Such financial precarity can also exacerbate health vulnerabilities. For example, wealth shocks can be associated with an increased risk for death among older adults, and sicker beneficiaries are more likely to be financially precarious, highlighting the bidirectional relationship between health and wealth.”

The study consisted of 4,881 community-dwelling Medicare beneficiaries, with incomes greater than 100% to 400% or less of the federal poverty level (FPL), who responded to the 2018 Health and Retirement Study (HRS). Considering the survey, the sample of beneficiaries represented an estimated 26.6 million Medicare beneficiaries ages 50 years and older. Out of the eligible beneficiaries, 45.0% were determined to lack sufficient funds across their checking and savings accounts to pay the Medicare hospital deductible. These findings have significant implications for the way that financial assistance is currently targeted to Medicare beneficiaries. Current Medicaid income and asset limits may inadequately protect financially vulnerable groups.

The researchers point out that asset limits have remained unchanged since 1989, making it increasingly difficult for beneficiaries to maintain a financial safety net without exhausting their resources, which could increase risk of future impoverishment. Furthermore, older beneficiaries are increasingly dependent on limited individual retirement savings, which may prove insufficient for long-term expenses, especially in the absence of pension benefits. Throughout this overwhelming process, the financial strain from health-related costs can increase health vulnerabilities, creating a perpetual “health-wealth” trap.

Despite recent Medicare reforms capping annual out-of-pocket Part D spending, changes are yet to target the “economic middle” of beneficiaries who are financially vulnerable, yet qualify for little to no assistance. To reduce the financial vulnerabilities inflicted upon Medicare beneficiaries, the study suggests the following policy reforms:

• Revise Medicaid eligibility criteria to consider either income or assets, rather than the current approach which considers both, thereby allowing support for those who rely on savings for future expenses.
• Raise income and asset limits to include more people facing financial challenges, potentially expanding partial Medicaid benefits to cover premiums and cost sharing.
• Place a cap on out-of-pocket costs in traditional Medicare, which is already a feature of the Medicare Advantage program.

“Between one third and one half of Medicare beneficiaries with incomes greater than 100% to 400% or less of FPL lack sufficient financial resources to pay for a single hospital stay,” the authors reiterated. “…Broadening financial protections in Medicare to beneficiaries with moderate incomes and limited assets may achieve greater economic parity and equity among older adults by increasing assistance to those with limited savings and gaps in supplemental insurance.”