Medicare is a critical lifeline for older adults who need health care as they age. But a new study shows that over the next two decades, out-of-pocket medical costs for older adults are likely to rise significantly, even with access to Medicare.

By 2035, a typical senior will spend one out of every seven dollars of retirement income on medical care, a 40 percent increase from 2012. The study, by Laura Hatfield, Thomas McGuire, and Michael Chernew of the Harvard Medical School and my Urban Institute colleague Melissa Favreault, projected that out-of-pocket cost increases will hit poor and near-poor households hardest.  It was published in the journal Health Services Research (paywall).

Keep in mind that the authors were looking at the cost of medical care only. More than two-thirds of older adults will have some long-term care needs before they die. And other research by Melissa shows that half will require a significant level of assistance over their lives. Those who do need this high level of care will pay an average of $140,000 out of pocket, on top of the medical costs this study projects.

The results of their health cost projections are very worrisome, especially as policymakers debate whether to reduce the federal contribution to Medicaid and consider restructuring Medicare in ways that would require seniors to pay an even greater share of their medical costs than current law.

Even without those changes, older adults are confronting a long list of troubling trends. For many, overall health costs are growing faster than their incomes. And employers are scaling back or eliminating retiree health benefits.

What will these and other changes mean for those 65 and older? By 2035, median out-of-pocket spending for medical care—both insurance premiums and direct costs such as co-pays and deductibles—will rise from 10 percent of income to 14 percent (Remember: median means that half will pay more and half will pay less). But there will be big differences depending on a senior’s income and medical needs.

For example, the very poorest will continue to pay almost nothing out-of-pocket, thanks to Medicaid. Still, among the lowest-income one-fifth of older households (who among all households made an average of about $22,800 in 2015), median health spending will rise from 5 percent of their income to 25 percent. The sickest will pay half of their income on medical care.

Among those seniors in the group of all households that made an average of about $43,500 in 2015 median spending will grow from 21 percent of income to 26 percent. Out-of-pocket costs for those in poor health will rise from 23 percent to 29 percent.

By contrast, the highest income 20 percent of older adults—a group in the overall population that made $117,000 or more in 2015—will pay about 5 percent of their income for health care in 2035, roughly the same share they do today.

Rising out-of-pocket costs will be a particular problem for those with chronic medical conditions and persistent high expenses. The study found that in 2014, about one-third of older adults paid at least 20 percent of their income for medical care for a period of five years (in any given year, and the two years before and after that year). By 2035, 44 percent will spend a fifth of their income on health costs for five years in a row.

Melissa and her co-authors developed these projections using the Urban Institute’s DYNASIM microsimulation model. DYNASIM projects changes in life expectancy, income, health and functional status, and many other factors to estimate lifetime need for health care. Like all models, it must make important assumptions.

For example, it assumes no policy changes to Medicare. If Congress curbs the federal payment for that program, out-of-pocket costs are likely to rise. At the same time, the model assumes that health care spending will grow at an average rate of about one percentage point faster than the overall economy, after accounting for population changes. If that growth rate turns out be more moderate, so will the effects on out-of-pocket spending by seniors.

Even given those uncertainties, this projection provides an important touchstone for the ongoing debate over health care. As I wrote in a recent blog: Programs such as Medicare and Medicaid are putting enormous pressure on the federal budget. But, at the same time, they are providing insufficient financial support for older adults, especially those with high-cost chronic disease. This paper shows just how big that shortfall will be, especially for the near-poor.