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How Out-of-Pocket Medical Costs Drive Even Insured Older Americans Into Debt

David Callahan

One obvious way to reduce the deficit is to squeeze Medicare recipients by forcing them to pick up more of the tab for their healthcare costs. And any number of proposals floating around in Washington would do exactly that. 

The problem, though, is that older Americans covered by Medicare are already spending a lot on healthcare -- and there's growing evidence that these costs are driving them into debt or poverty. 

Earlier this month, Demos and AARP released a report on credit card debt among older Americans that found that 31.9 percent of senior households between 65-74 carried credit card debt, and 21.7 percent of seniors over 75 had such debt. 

The sample size the survey analyzed was not large enough to determine the exact scope of such debt for these older Americans, but overall found that "Among middle-income Americans who carried credit card debt, the 50+ population had an average combined balance of $8,278 on all of their cards in 2012."

This is a disturbing finding. After all, if you have debt, there's a good chance you have minimal savings -- which is not where you want to be in your 50s, 60s, or 70s. 

Medical expenses, the report found, are an important factor in such debt:

More than four in five Americans age 50+ who are carrying credit card debt incurred some out-of-pocket medical expense in the last three years. Among  these households, six in ten said of  out-of-pocket medical spending contributed to their current credit card debt. Half of all indebted households headed by an older American carried medical debt on their credit cards, with an average of $893 of credit card medical debt, compared with $746 among younger households. More than four in five Americans age 50+ who are carrying credit card debt incurred some out-of- pocket medical expense in the last three years. Among these households, six in ten said of out-of-pocket medical spending contributed to their current credit card debt. Half of all indebted households headed by an older American carried medical debt on their credit cards, with an average of $893 of credit card medical debt, compared with $746 among younger households.
None of this is very surprising given the other data out there on rising out-of-pocket healthcare costs for Medicare recipients. A study published last fall by the RAND Corporation put the situation this way:
Our current system for retiree health care increasingly relies on seniors to finance significant health care expenditures over their retirement. Even though most will benefit from Medicare coverage, Medicare pays for only about 60 percent of retiree health care costs and, on its own, has no limit on out-of-pocket spending. Supplemental insurance is available to cover what Medicare does not, but can be expensive and still leave some coverage gaps. Recent estimates are that the median Medicare beneficiary spends about 16 percent of income on “out-of-pocket” health care spending (premiums and direct payments for cost sharing and uninsured care). Low-income retirees (those earning under $13,400), retirees in fair or poor health, or those over 85 years old spend as much as one third of their annual income on such costs.

Those are some devastating facts. Imagine living on $12,000 a year and then spending $4,000 a year on prescription drugs or various co-pays? Even a much better case scenario -- say, living on $100,000 a year and spending $16,000 a year on healthcare costs is pretty horrifying. No wonder seniors are piling up credit card debt.

And mind you, all this is happening in the part of the social safety net widely considered to be working best. Conventional wisdom holds that the U.S. won war on poverty when it comes to old people. Well, not quite.

It gets worse. Demos' research on credit card debt has long found that big life events -- like weddings, the birth of a baby, losing your job -- often leave people with credit card debt. Now it turns that dying should be on that list, too. 

According to a study published last fall, out-of-pocket healthcare costs at the end-of-life can be huge: "More than 75 percent of households spent at least $10,000, while the top quarter spent an average of nearly $102,000," as reported by the Fiscal Times. In other words, if your spouse or a parent dies, you're going to be looking at a whole lot of bills -- with healthcare providers conveniently accepting Visa and Mastercard.

Some ways of dying are more expensive than others: Households where someone died from Alzheimer's ended up with an average of $66,000 in out-of-pocket expenses. Some 22,000 people die of Alzheimer's every year and that number is going to increase dramatically in coming years.

Congress may be making some big choices about Medicare, Social Security, and Medicaid in coming months. The precarious situation of seniors facing huge out-of-pocket healthcare costs should never be far from mind.