Some Rare Good News: Retiree Health Savings Needs Slip

Projections for how much elderly Americans need to save for out-of-pocket health care in retirement have edged lower, due to a provision the federal health reform law that will cover more of their prescription drug costs, according to a new report by EBRI.

The Patient Protection and Affordable Care Act (PPACA) reduces cost sharing in the Medicare Part D “donut hole” to 25 percent by 2020. This year-to-year reduction in coinsurance will continue to reduce savings needed for health care expenses in retirement, all else equal, for individuals with the highest prescription drug use, EBRI reports.

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) added outpatient prescription drugs (Part D) as an optional benefit. When the program was originally enacted, it included a controversial feature: a coverage gap, more commonly known as the “donut hole.” PPACA included provisions to reduce (but not eliminate) this coverage gap.

Medicare generally covers only about 60 percent of the cost of health care services (not including long-term care) for Medicare beneficiaries ages 65 and older, while out-of-pocket spending accounts for 13 percent (see figure, below).

The EBRI analysis finds 1–2 percent reductions in needed savings among individuals with median (mid-point, half above and half below) drug use and 4–5 percent reductions in needed savings among individuals at the 90th percentile in drug use since its last analysis in 2011.

The full report, “Savings Needed for Health Expenses for People Eligible for Medicare: Some Rare Good News,” is published in the October EBRI Notes, online at www.ebri.org

The press release is online here.

The Impact on the Uninsured of the Baby Boom Generation Reaching Age 65

By Paul Fronstin, EBRI

This week the Census Bureau released its annual report on income, poverty and the uninsured. The number of uninsured increases naturally because of population growth even when the percentage declines, but in 2011 both the percentage of the population and the number uninsured declined: Between 2010 and 2011, the percentage uninsured fell from 16.3 percent to 15.7 percent and the number fell from 50 million to 48.6 million. In fact, 2011 was only one of four years since 1994 that saw a decline in the percentage uninsured.

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Why did both those measures fall in 2011?

Some segments of the population did see an increase in employment-based coverage, notably young adults taking advantage of the adult dependent mandate in the Affordable Care Act (ACA), but these gains were offset by other loses (such as the decline in coverage from one’s own job for workers of all ages), negating any impact on the aggregate decline in the uninsured. The percentage of the population with employment-based health benefits stood at 55.1 percent in 2011, compared with 55.3 percent the previous year, so it would not account for the decline in the uninsured.

There was growth in the number of people covered by Medicaid and SCHIP (the State Children’s Health Insurance Program). In 2011, 16.5 percent of the population had Medicaid or SCHIP, up from 15.8 percent in 2010. So this increase accounted for some of the decline in the uninsured.

Overall, the decline in uninsured was largely associated with a rise in the share of people covered by government-sponsored health plans, increasing to 32.2 percent in 2011 from 31.2 percent in 2010.

Coincident with this trend, it’s worth noting that the leading edge of the Baby Boom generation (the cohort of individuals born between 1946‒1964) turned 65 in 2011, meaning that this generation is finally reaching Medicare eligibility.

Statistically, 65-year-olds have now reached 1 percent of the total U.S. population. While not yet a large number, it is the largest in recent history, driving up Medicare enrollments, and perhaps marking the cusp of a significant demographic shift in insurance trends.

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How Repealing PPACA Would Affect Needed Savings for Health Care

The August 2011 EBRI Notes contains an aricle on “The Impact of Repealing PPACA on Savings Needed for Health Expenses for Persons Eligible for Medicare.”

New modeling by EBRI finds that Medicare beneficiaries with high levels of prescription drug use would have to save 30-40 percent more than they currently are to pay for higher drug costs if President Obama’s health reform law is repealed.

Medicare beneficiaries with median prescription drug costs would not see any change in their savings targets, EBRI’s analysis finds.

EBRI takes no position on whether or not the law should be repealed; rather, its analysis is designed to measure which groups would be affected and provide estimates of additional savings needed by those who would be affected if it was

The Notes press release is online here.

The full report is online here.