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Encyclopedia of Aging | 2002 | Garfield, Rachel; Rowland, Diane
COPYRIGHT 2002 The Gale Group Inc.
Millions of elderly people in the United States have extensive health care needs
and expenses, but many have limited incomes or savings to help them cover the c
ost of care. Virtually all elderly Americans have Medicare, the federal health i
nsurance program for elderly and disabled Americans, to help pay medical bills.
However, limits in the scope of benefits, coupled with financial obligations for
coverage, can impose a serious financial burden. Elderly persons with low incom
es are particularly vulnerable to these burdens because they are more likely to
have health problems than higher-income Medicare beneficiaries, yet are less abl
e to afford care. In addition, they are less likely to be able to access or affo
rd the supplemental coverage that many Medicare beneficiaries purchase to help f
ill in Medicare's gaps.
Medicaid, a means-tested entitlement program that provides health coverage to lo
w-income Americans, serves as an important complement to Medicare by assisting l
ow-income Medicare beneficiaries with Medicare premiums and cost-sharing, and by
providing coverage for prescription drugs and long-term care services not avail
able through Medicare. Medicaid's supplemental coverage helps many low-income el
derly persons gain access to needed health services and provides financial secur
ity from the high cost of care.
The need for medical assistance
In general, elderly persons are less healthy and have greater health care needs
than the general population. Nearly a third of people age sixty-five and over re
port that their health status is poor or fair, compared to 18 percent of people
age 55 to 64 and just 6 percent of those age 25 to 44. A significant percent of
elderly persons live with serious or disabling health problems, such as arthriti
s (56 percent), hypertension (53 percent), and heart disease (36 percent), and m
any live with multiple chronic conditions (69 percent). These are all conditions
that require increased contact with the health care system and ongoing care, in
cluding frequent visits with a health care provider, prescription medications, a
nd, at times, hospitalization or other inpatient medical services.
Medicare coverage
The Medicare program provides basic health coverage to most persons age 65 and o
lder, regardless of income, assuring them access to the health system and protec
tion from financial catastrophe when illness strikes. Medicare consists of two p
arts: Hospital Insurance (Part A), which covers inpatient hospital care, limited
skilled nursing facility care, and home health and hospice services, and Supple
mentary Medical Insurance (Part B), which covers physician and outpatient hospit
al services, as well as some other screening, laboratory, and home health servic
es. However, the program does not cover all medical services that elderly people
need (most notably, prescription drugs and nursing home care) and requires bene
ficiaries to pay monthly premiums and some portion of the cost of services at th
e point of care. For example, in 2002 the deductible for Part A was $812 and ben
eficiaries had to pay some portion of the charge for extended hospital stays. Me
dicare also requires a monthly ($100 in 2002) premium for Part B coverage ($54 i
n 2002) and 20 percent co-insurance after the Part B deductible ($100 in 2002) i
s met.
While many Medicare recipients purchase supplemental insurance to help with thes
e cost-sharing obligations, these requirements can impose a substantial financia
l burden on the more than eleven million elderly Medicare beneficiaries (36 perc

ent) who are poor or near-poor (see Figure 1). Not only do many Medicare benefic
iaries live on modest incomes, but most rely on Social Security benefits as thei
r main source of income. Social Security benefits are often quite modest the avera
ge in 2001 was about $800 per month. However, these benefits are the major sourc
e of income for nearly two-thirds of beneficiaries. Living on fixed incomes with
little potential for additional earnings leaves these beneficiaries with minima
l cushion to absorb additional medical costs.
The potential burden of medical costs is particularly important to low-income el
derly people because they are more likely to need medical services than higher-i
ncome beneficiaries. Poor elderly Medicare beneficiaries are nearly twice as lik
ely as higher-income beneficiaries to report their health status as fair or poor
, and they are more likely to live with multiple chronic conditions and function
al limitations than elderly people with higher incomes. Poor health status and c
hronic medical conditions translate into higher costs due to the increased need
for medication and physician supervision, as well as the need for nonmedical sup
port services such as transportation and personal care assistance with daily tas
ks such as bathing and cooking.
note: In 1999, the federal poverty level was $8,240 for individuals, $11,060 for
To provide assistance in covering the cost of uncovered Medicare services and Me
dicare cost-sharing, many elderly persons have supplemental coverage in addition
to Medicare. There are different types of supplemental coverage, and the cost a
nd scope of benefits vary. Thirty-six percent of Medicare beneficiaries have emp
loyer-sponsored retiree coverage. This type of coverage is typically very genero
us, covering a wide range of benefits and limiting beneficiaries' out-of-pocket
costs. Another source of supplemental coverage is individually purchased Medigap
policies, which about a quarter of Medicare beneficiaries hold. Beneficiaries p
ay monthly premiums for Medigap coverage on average $100 per month, though policie
s range in cost from about $1,400 to $4,700 per year, depending on where a perso
n lives, the level of coverage they obtain, and their age.
Supplemental coverage of Medicare beneficiaries varies significantly by income (
see Figure 2). Higher-income beneficiaries are more likely to have worked in job
s that offer retiree coverage, and higher- and moderate-income beneficiaries are
also more likely to purchase Medigap policies. Lower-income beneficiaries, in c
ontrast, are more likely to rely solely on Medicare. This difference in coverage
exists because low-income elderly people are less likely to have worked in jobs
that offer private supplemental coverage after retirement. In addition, though
many purchase Medigap policies, the high cost of such coverage is unaffordable f
or some.
Ultimately, poor Medicare beneficiaries bear a disproportionate burden in out-of
-pocket health care costs, spending more than a third of their income on health
care, compared to 10 percent for higher-income beneficiaries. These costs may le
ad some elderly people into impoverishment or force them to choose between cover
ing their health care costs and paying for other basic necessities.
Medicaid coverage for elderly persons
Medicaid, the nation's major public financing program for providing health and l
ong-term care coverage to low-income people, fills in Medicare's gaps for millio
ns of low-income elderly people. Medicaid is jointly funded by federal and state
governments and administered by the states. Enacted as Title XIX of the Social
Security Act in 1965, the program has evolved from one that primarily covered pe
ople receiving cash assistance to being an essential provider of health and long
-term care coverage for over forty million low-income Americans.

Medicaid coverage is targeted to people who have low incomes, few assets, and wh
o fall into particular categories, such as low-income children, some poor parent
s, pregnant women, people with disabilities, and elderly persons. In 1998, the p
rogram covered over four million elderly people, accounting for about 10 percent
of total Medicaid enrollment and about 12 percent of elderly people on Medicare
There are several pathways through which elderly people can become eligible for
Medicaid assistance, and the scope of coverage varies according to which pathway
is used (see Table 1). The poorest Medicare beneficiaries those who are receiving
or eligible for cash assistance through the Supplemental Security Income (SSI)
program receive assistance with all of Medicare's financial requirements and are a
lso covered for the full range of Medicaid benefits. These benefits wrap around
and supplement Medicare coverage. People who have exhausted their personal resou
rces paying for health and long-term care services to the point that their avail
able incomes fall below cash assistance income standards are also eligible for t
he same level of benefits. States also have the option to provide this level of
coverage to elderly persons with slightly higher incomes or assets.
The majority of elderly people receiving Medicaid assistance fall into one of th
ese groups and receive full Medicaid benefits. Because Medicaid supplements Medi
care benefits, these beneficiaries (known as dual eligibles ) rely on Medicaid p
rimarily for services not covered by Medicare, such as prescription drugs and lo
ng-term care, and for coverage of Medicare's premiums and cost-sharing.
Other low-income beneficiaries are eligible to receive assistance primarily limi
ted to Medicare financial requirements (most notably, Part B premiums and cost-s
haring), through four related programs, which are often referred to as the buy-i
n programs or "Medicare savings programs." Since the programs' inception in 1965
, states have had the option to buy-in the poor to Medicare by paying their Part
B premium and cost-sharing. In the late 1980s and the 1990s, the federal govern
ment expanded the Medicaid buy-in to assist low-income Medicare beneficiaries wi
th the growing cost of Medicare premiums and cost-sharing. The first initiative
was the Qualified Medicare Beneficiary (QMB) program, through which Medicaid pay
s the Medicare cost-sharing requirements and the Part B premium for beneficiarie
s with incomes below the federal poverty level (in 2000, the poverty level was $
8,350 for an individual and $11,250 for couples) and limited assets. The Specifi
ed Low-Income Medicaid Beneficiary (SLMB) program pays the Part B premium for pe
ople with incomes between 100 and 120 percent of the federal poverty level and l
imited assets. Finally, the Qualified Individual (QI) programs provide a set amo
unt of money to provide some assistance to Medicare beneficiaries with higher in
comes (up to 175 percent of poverty) on a first come, first served basis.
note: Columns may not sum to 100 percent; employer/retiree includes both benefic
iaries who have supplemental insurance from a former employer or union and those
who are still working and whose current employer is their primary source of ins

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