How Much Does Out-of-Pocket Medical Spending Eat Away at Retirement Income?

CRR WP 2013-13

34 Pages Posted: 9 Oct 2017

See all articles by Melissa McInerney

Melissa McInerney

Tufts University

Matthew S. Rutledge

Boston College, Center for Retirement Research

Sara Ellen King

Boston College - Center for Retirement Research

Date Written: October 1, 2017

Abstract

The adequacy of retirement income – from Social Security benefits and other sources – is substantially reduced by Medicare’s high out-of-pocket (OOP) costs. This project uses the 2002-2014 Health and Retirement Study to calculate post-OOP benefit ratios, defined as the share of either Social Security benefits or total income available for non-medical spending. The project decomposes the share of income that is going toward premium payments and services delivered and examines how these post-OOP benefit ratios differ by age, gender, income, supplemental insurance coverage, and health status. The project also updates previous studies’ estimates to document how OOP spending and the post-OOP income ratios changed following the introduction of Medicare Part D prescription drug coverage in 2006 and the closing of the “donut hole” coverage gap in 2010, which decreased OOP costs under Part D for those spending moderate amounts on prescriptions.

The paper found that:

-Average OOP spending (excluding long-term care) was $4,274 per year in 2014, with approximately two-thirds ($2,965) spent on premiums. -In 2014, the average retiree had only 65.7 percent of his Social Security benefits remaining after OOP spending and only 82.2 percent of total income. -Nearly one-fifth (18 percent) of retirees had less than 50 percent of their 2014 Social Security income remaining after OOP spending, with 6 percent of retirees falling below 50 percent of total income. -Post-OOP benefit ratios increased concurrently with the introduction of Medicare Part D for retirees who lacked prescription drug coverage prior to 2006. This group also saw a small increase after the donut hole began closing in 2010. The policy implications of the findings are:

-With less than two-thirds of their Social Security benefits available for non-medical consumption, and limited income outside of Social Security for much of the elderly population, many retirees likely feel that making ends meet is difficult. -Medicare spending per beneficiary is expected to resume its decades-long rise by the end of the decade which will put even more pressure on retirees’ budgets.

Suggested Citation

McInerney, Melissa and Rutledge, Matthew S. and King, Sara Ellen, How Much Does Out-of-Pocket Medical Spending Eat Away at Retirement Income? (October 1, 2017). CRR WP 2013-13, Available at SSRN: https://ssrn.com/abstract=3048889 or http://dx.doi.org/10.2139/ssrn.3048889

Melissa McInerney

Tufts University

Medford, MA 02155
United States

Matthew S. Rutledge

Boston College, Center for Retirement Research ( email )

Boston, MA
United States

HOME PAGE: http://crr.bc.edu/researchers/matthew_s_rutledge.html

Sara Ellen King (Contact Author)

Boston College - Center for Retirement Research ( email )

Boston, MA
United States

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