While Medicare provides significant coverage for health care costs for those over age 65, it does have cost-sharing features and there are potentially big-ticket items it doesn’t cover, like extended nursing home care. As more people live well-beyond 70, they have concerns about their ability to meet their out-of-pocket health costs, particularly since many, if not most, people near that age have little savings. A study from the National Bureau of Economics Research looks at expected out-of-pocket lifetime medical expenses for households with a member over age 70, and at the dispersion of those costs. (NBER Paper) Data from the Health and Retirement Survey is the primary source of information. The amount of out-of-pocket medical expenditures over time and the spread of that spending was estimated, with Medicaid included, since for lower-income elderly persons Medicaid will pay much of the otherwise out-of-pocket costs. At age 70, on average a household will incur $122,000 in out-of-pocket spending for the rest of their lives. This average masks a very large dispersion over the population and over time for an individual. For example, the top 5% of spenders will incur an average of more than $300,000 in out-of-pocket expenses. Spending also can be very lumpy, with an acute disease incident raising costs for a period of time. It also is higher at the end-of-life.
The size of health shocks is substantial. About one-tenth of a percent of households each year have a health shock of at least $125,000. Some interesting and not completely unexpected nuggets from the paper include that women have higher lifetime expected out-of-pocket medical spending than do men, largely because of longer life expectancy, that married households tend to have lower expected costs, that wealthier people have more spending, partly because of longer life expectancy and that Medicaid protects lower-income groups from much if not most health spending as they age. In fact, one frightening aspect of the study is the amount of health spending picked up by Medicaid, especially for the much older cohorts. Medicaid picks up an average of 20% of expected out-of-pocket spending. This just adds to concerns about how the states will possibly afford the program.