Medicare was created to ensure older adults in the U.S. have healthcare coverage while protecting them from financial ruin. But for at least 10 million older adults today, one of the most influential insurance programs in the U.S. is failing. For this financially precarious population of Medicare beneficiaries, a hospitalization costs around $1,600 and triggers an immediate financial crisis. And with the risk of hospitalization rising with age, this kind of threat is all but unavoidable. Nearly 60 years after its founding, Medicare is full of and may be driving many near-poor older Americans into a poverty trap.
More than half of older adults in the U.S. are "near-poor," meaning they have incomes ranging from around $15,000 to $60,000 for individuals or $20,000 to $80,000 for couples. They are too well-off to , but often cannot afford supplemental insurance. Some older adults enroll in Medicare Advantage plans or supplemental insurance called Medigap, but each program has a host of its own barriers. Most of these poor older adults live on , so they can't just raise their income to pay off medical bills, particularly unexpected ones.
This predicament is shockingly common: Over in the U.S. has a hard time paying medical bills. This often leads them to delay care.
Health insurance is supposed to help protect patients from these hardships. But when so many patients feel compelled to ask their doctors, "How much will this cost me?" we know health insurance programs -- including Medicare -- simply aren't working.
This has been a daunting problem for policymakers to fix. One reason is because it's hard to identify the people who most need support: Who should be targeted? How do we identify them? And how long might they need support?
tries to answer some of these questions. We simulated what would happen to an older person's finances if they were unexpectedly hospitalized and had to pay a deductible. For many older adults on Medicare, this cost is $1,600 (the standard Medicare Part A hospital deductible). We focused on the "near-poor" population who make up the "economic middle" of Medicare. And while they often live in harsh economic circumstances, their incomes are just above the cutoff to qualify for existing insurance subsidies.
We found that 45% of near-poor older adults would not have enough money in their checking and savings accounts to pay an unexpected bill of $1,600. If we consider other sources of wealth (such as stocks, bonds, and individual retirement accounts), between 39% and 51% of near-poor older adults (over 10 million people) would still lack sufficient resources to pay for a hospitalization without becoming impoverished. The risk is far higher for older adults who are Black or Hispanic. It's also higher for older adults with lower levels of education and more chronic ailments.
Cruelly, this financial fragility persists: Among those who couldn't pay for a hospitalization in one year, 80% were in the same position 4 years later. Because we get sicker as we get older, we are more likely to be hospitalized over time. Therefore, the risk of poverty increases over time. For the millions of older Americans who remain financially precarious year after year, the inevitability of a medical financial crisis creates a poverty trap.
While these results are scary, policymakers can take action.
First, we could change Medicaid eligibility guidelines to consider income or assets when determining who qualifies instead of the current income and assets, which leaves millions unprotected from financial ruin. Federal subsidies could support this transition from "and" to "or" thresholds, as was the case for Medicaid expansion under the .
Second, we could cap out-of-pocket costs in traditional Medicare. for Medicare Advantage. But for the roughly half of older Americans in traditional Medicare, there is no upper limit on out-of-pocket costs for hospital expenses. Through the , Medicare Part D now has a $2,000 upper limit cap for prescription drug costs and a new option to pay monthly installments to cover high-cost prescription drugs. Expanding out-of-pocket caps and payment options could help prevent hospitalized patients from living in a poverty trap.
Third, subsidies for Medigap insurance premiums could help near-poor older adults avoid high out-of-pocket costs altogether. Traditional Medicare is often used with supplemental insurance, like Medigap. But the cost of Medigap is out of reach for many near-poor older adults. Expanding Medigap access would allow more older adults to use Medicare as it is intended: to protect them from insurmountable medical bills.
Finally, we could for enrolling in financial assistance. These include complicated paperwork for enrollment and maintenance, frequent recertification, and overall stress related to the process of obtaining benefits. These burdens can be especially difficult to overcome for older adults with chronic health conditions, cognitive impairment, or other disabilities.
For example, a aims to streamline the Medicaid application process for older adults by removing in-person interviews and requiring states to use data from other sources to start a Medicaid application. Auto-enrollment in Medicaid is , and could be expanded further. While administrative tasks are seen as important checks to prevent fraud, in many cases they are tools to deter eligible beneficiaries from receiving essential assistance for health costs.
Medicare's open enrollment is happening now through December 7. As millions of older adults enter the program or choose plans, they enter a new reality in which Medicare often fails to protect people from impoverishment. This reality needs to change now.
, is an assistant professor in the Division of General Internal Medicine and Senior Fellow at the Leonard Davis Institute of Health Economics, both at the University of Pennsylvania in Philadelphia. is a statistical analyst in the Division of General Internal Medicine at the University of Pennsylvania. is a senior research coordinator in the Division of General Internal Medicine at the University of Pennsylvania.