Academic journal article Social Security Bulletin

Medicare Gaps and Widow Poverty

Academic journal article Social Security Bulletin

Medicare Gaps and Widow Poverty

Article excerpt


There have been tremendous improvements in the economic status of the elderly during the past 50 years. Today, the old-age poverty rate is less than one-third of what it was in the middle of the 20th century. Yet despite these declines, poverty rates among selected groups remain high.

Of particular note are the disproportionately high rates of poverty for widows. For the past 30 or more years, the poverty rate for elderly widows has persistently been three to four times higher than that for elderly married women. Although policymakers have repeatedly expressed concern about these high rates, successful policy prescriptions have yet to be adopted. The focus of policymakers to date has been on effecting changes in sources of income, particularly through changes in pension regulations. We provide an alternative explanation that may operate in concert with changes in income: the potential for couples to spend substantial portions of their resources on the health care of a sick or dying spouse, leaving the surviving spouse in a precarious financial situation.

The potential for large out-of-pocket medical expenditures was reduced greatly by the establishment of the Medicare program in 1965. Today, nearly all elderly persons have health insurance coverage through Medicare. But Medicare has sizable gaps; most notably it does not cover extended hospital stays, most long-term care needs, and until changes taking effect in 2006, prescription drugs. Although many individuals have health insurance to supplement Medicare, a sizable portion of the population is left vulnerable to catastrophic expenditures-expenditures that frequently occur in the months just before death. These costs may be sufficiently great, and the depletion of assets to pay these bills sufficiently large, that the financial well-being of the surviving spouse is affected. Although this hypothesis has never been examined directly, it is of substantial current interest, particularly as policymakers consider further changes to Medicare.

In this article, we examine the distribution of medical out-of-pocket expenditures, the extent to which supplemental insurance (medigap) and Medicaid reduce that spending, and the magnitude of that spending relative to income. We then look at the potential effects of these expenditures on the financial well-being of the surviving spouse and simulate the impact of changes in Medicare coverage to look at the potential for improving the financial outcome for widows.

We find that medical out-of-pocket expenditures per dying individual are substantial, averaging $5,684 over the last year of life, which is significantly higher than expenditures made during the same period by similarly aged people who did not the during our window of observation. Furthermore, these expenditures are large relative to income and thus have the potential to have a substantial negative effect on the finances of the surviving spouse. Our simulations imply that a significant amount of the decline in the financial well-being of the surviving spouse, as measured by a poverty rate adjusted for medical out-of-pocket spending, can be attributed to the out-of-pocket medical costs accruing during the decedent's last illness. We therefore argue that such expenses should play a prominent role in policy discussions.

Our article proceeds as follows: (1) we provide background information on alternative explanations for the high poverty rate of widows and describe the coverage provided by the Medicare program; (2) we discuss the Study of Aging and Health Dynamics (AHEAD) cohort of the Health and Retirement Study, the data set we use for our analysis; (3) we present descriptive evidence on the magnitude and distribution of spending; (4) we discuss regression analyses of MOOP expenditures and other factors affecting the finances of the surviving spouse and the effect of these expenditures on simulated poverty rates; and (5) we then summarize the findings. …

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