We spend more on our health care as we age. No news there. But you may be surprised to learn that all health spending is not created equal. For most of us, as long as we can stay out of the hospital or a nursing home, our costs are relatively modest–and steady–even as we grow older.
But that can change if we have a severe, acute medical episode that lands us in a hospital bed or a skilled nursing facility, or if our functional or cognitive limitations get so severe that we need home health care or even must move to a nursing home. While we use those services infrequently, we are more likely to do so as we age. Because they are extremely expensive and often not paid for by Medicare, our out-of-pocket costs for those services can go through the roof.
According to a new study by Sudipto Banerjee at the Employee Benefit Research Institute, out-of-pocket spending for routine (he calls it “recurring”) care changes very little after age 65. Even at age 85 and older, our spending for visits to doctors or the dentist–or even for medication–remains pretty constant. In part, that may be because Medicare pays a big chunk of the costs for many of these services, including medications, though the program does require co-pays and deductibles (and, in the case of drugs, has the famous donut hole).
Banerjee did find a big gap between what a typical senior spends on drugs compared to out-of-pocket costs for a handful of the biggest users. For instance, an average spender aged 65-74 can expect to pay about $1,900 for medications over a two-year period (Note the study looks over two years, not annually). But the top ten percent of spenders will pay $4,800 for their meds.
However, even among those high users there is little change in costs as people age. In other words, if you were a big spender at 85, you were probably also a high-cost user at 65.
The story is very different, however, when it comes to less frequent but very expensive medical care or long-term supports and services. Banerjee’s data comes from the Health and Retirement Study, a comprehensive national survey of people 50 and older.
As we age, we are far more likely to use these costly services. For instance, about 27 percent of those 65-74 had an overnight hospital stay during the period 2010-2012, while more than 42 percent of those 85 and older spent at least one night in a hospital. Similarly, less than 4 percent of younger seniors spent a night in a skilled nursing facility but nearly one-quarter of those 85 or older did so.
Interestingly, a separate study by Tricia Neuman and colleagues at the Kaiser Family Foundation finds that per-person Medicare spending increases with age until people reach very old age, when it begins to steadily decline. This suggests that the very old choose to use fewer in-patient services or other costly forms of treatment.
However, the pattern of out-of-pocket spending that Banerjee tracks held for those living in a long-stay nursing home. Before age 75, fewer than 1 percent were living in a facility when they were surveyed. But more than 15 percent of those 85 and older were nursing home residents.
And if you do live in a nursing home, out-of-pocket care costs can explode. The average two-year cost for people spending any time in a nursing facility is about $24,000. But among the top 10 percent of spenders, it is nearly $67,000. Remember, Medicare does not pay for this care. Medicaid will, but only if you are impoverished and require a high level of assistance.
Other studies show that the typical 65 year old couple needs to put aside between $200,000 and $250,000 to pay for their out-of-pocket health care in retirement. This new report provides a valuable look at how we spend it.