• Skin in the Medicare game

    Last month I posted a chart from a recent Milliman report that showed the evolution over time of “skin in the game” for a typical family of four enrolled in a PPO. Similar charts pertaining to Medicare have been provided by the Kaiser Family Foundation. I reproduce a few below.

    The first chart illustrates median out-of-pocket costs as a percent of income (total, premium only, and non-premium cost-sharing only) for Medicare beneficiaries over the period 1997-2006.

    Though it has generally gone up over time, this doesn’t look like a whole lot of skin. But, remember, it’s for a median beneficiary. By definition over half of beneficiaries pay more. The next chart reveals a little bit about who pays more. Older, sicker, and lower-income beneficiaries generally pay more of their care, relative to income. Before you say, “Duh!” to the last one, remember that there is additional help for low-income Medicare beneficiaries. So, they pay more despite the low-income subsidy program in Part D, Medicaid, and other low income benefits.

    To the extent that health and age are correlated with income, it isn’t┬ásurprising┬áthat older and sicker beneficiaries pay more. Also, sicker (and older) beneficiaries have more expenses. So, again, not surprising.

    However, a lot of the out-of-pocket spending has nothing to do with the services used and more to do with premiums. The next chart shows this. Forty percent of Medicare beneficiaries’ spending is in premiums. A substantial portion is in long-term care (19%). Medical providers and supplies (at 15%) and prescription drugs (at 12%) also consume large fractions of out-of-pocket health spending. Hospital services and post-acute care out-of-pocket spending are rather modest (6% and 2%, respectively). This suggests that Medicare Part A is relatively more generous than Part B, at least compared to the services people seem to want.