The Within-Year Concentration of Medical Care Utilization
The driving force behind within-year burdens is the within-year concentration of medical care utilization. graphs monthly family utilization as a percentage of total annual utilization among families with positive use. Months were ranked by utilization for each family, with shares of annual family utilization being averaged across the sample for each ranked month.10
To combine utilization across service types, events are weighted by charges, total expenditures, and out-of-pocket expenditures. Weighting utilization by charges has the advantage of accounting for uncompensated care. Weighting by total expenditures has the advantage of reflecting actual payment flows rather than potentially subjective charges (but misses uncompensated care). Weighting by out-of-pocket payments is most directly relevant to burdens, showing the share of out-of-pocket bills for care that were incurred (if not always paid) in a given month.
Within-Year Concentration of Family Utilization: Monthly Shares of Annual Totals by Ranked Months, 2003–2004
Utilization was highly concentrated for all three measures. Weighting by charges, 48.6 percent of families' annual utilization occurred in a single month. Utilization was less concentrated when weighted by total expenditures, because hospital-related events were disproportionately represented in peak-month utilization (and had lower payment/charge ratios) and because prescription drugs were more evenly distributed than other events (and had payment/charge ratios of one by construction).11
Utilization was least concentrated when weighted by out-of-pocket payments, yet even in this case the peak month accounted on average for 44.5 percent annual family utilization.
presents average monthly and quarterly peak utilization percentages for selected subgroups. Peak quarters accounted for larger shares of annual utilization than did peak months. This is partially by construction, since a 40 percent peak month share would translate into a 50.9 percent peak quarter share even if utilization were uniformly distributed across all nonpeak months.12
However, observed peak quarter shares tend to be larger than such calculations would suggest, because months surrounding the peak had higher utilization on average than other nonpeak months.
Within-Year Concentration of Family Medical Care Utilization, 2003–2004
Within-year utilization concentrations were consistently high across population subgroups. Low-income families—those under 200 percent of the federal poverty line (FPL)—had more concentrated utilization than higher-income families. Utilization was slightly more concentrated among families with public coverage than among those with private coverage, and utilization was most highly concentrated among uninsured families. Note, however, that uninsured families were also the least likely to use care. Had zero utilization families been included with peak month shares of 1/12, uninsured families would have had the lowest average peak month shares.
Grouping by family size shows the expected pattern of lower concentrations among larger families. However, even among families with five or more members, the average peak month accounted for 46.2 percent of annual utilization weighting by charges or 43.6 percent of annual utilization weighting by out-of-pocket expenditures. This is largely because utilization was very unevenly distributed across family members. On average, the family member with highest utilization accounted for 71.1 percent (SE=0.2) of annual family charge-weighted utilization among families with use (not shown in table). Even in families with five or more members, the highest user accounted on average for 59.8 percent (SE=0.5) of the family total. In the peak utilization month, shares of family utilization due to a single member averaged 83.0 percent (SE=0.2) overall and 80.0 percent (SE=0.6) in families with five or members.
also shows the extent to which high concentrations are driven by families with limited use. A family with a single low-cost office visit during the year would have a peak month share of 100 percent, yet can be viewed as having a “utilization spike” in only the narrowest sense. Peak month shares were indeed highest among families with annual expenditures <$1,000 (2,004 dollars). However, peak month shares exceeded 40 percent in all expenditure groups when weighted by charges and were more than four times the annual average even when weighted by out-of-pocket payments.
Prevalence of High Within-Year Burdens
presents the paper's main results regarding the frequency of high out-of-pocket spending burdens. The table presents means for the four basic components of burdens—disposable income, out-of-pocket spending on care, out-of-pocket spending on premiums, and tax subsidies that defray out-of-pocket spending.13
Not surprisingly, there were substantial differences in income, spending, and tax subsidies across poverty level and family insurance coverage.
20% Annual, Quarterly, and Monthly Out-of-Pocket Medical Spending Burdens, 2003–2004
On average, over one quarter of the nonelderly population lived in a family experiencing a month in which (post-subsidy) out-of-pocket spending on premiums and care exceeded 20 percent of disposable income. This is nearly four times the prevalence of high annual burdens. The frequency of high quarterly burdens was approximately halfway between the monthly and annual frequencies.
The remainder of shows annual and within-year burden rates by poverty level and coverage. High annual, quarterly, and monthly burden frequencies among the poor were 21.5, 34.5, and 43.7 percent, respectively. In families between 100 and 199 percent of FPL, these burden rates were 10.4, 23.7, and 34.9 percent. Even among families between two and four times FPL the frequency of high monthly burdens was 28.9 percent.
A large percentage of low-income families experienced high within-year burdens even if the burden threshold is doubled (not shown in table). Among the poor, 24.6 percent (SE=0.9) and 32.7 percent (SE=0.9) experienced 40 percent quarterly and monthly burdens, respectively. Among persons in families between 100 and 199 percent of FPL, the corresponding frequencies were 10.3 percent (SE=0.5) and 19.3 percent (SE=0.7). Lowering the burden threshold to 10 percent of disposable income increases high quarterly and month burden prevalence to 45.8 percent (SE=0.9) and 54.7 percent (SE=1.0) among the poor and 40.6 percent (SE=0.9) and 53.9 percent (SE=0.9) in families between 100 and 199 percent of FPL.
Persons in families with full public coverage experienced high quarterly burdens nearly twice as often as did persons in families with full private coverage. This is primarily due to families with Medicare beneficiaries. Excluding such families, so that public coverage is predominantly through Medicaid or the State Children's Health Insurance Program (SCHIP), the public-private difference in quarterly burden frequency was much smaller, and the difference in monthly burden rates was not statistically significant.
One important question is whether within-year burdens can be adequately captured simply by computing annual burdens with lower income thresholds. Among persons in poor families, 29.9 percent (SE=0.9) had both 10 percent annual and 20 percent monthly burdens, whereas 1.1 percent (SE=0.2) had only the former and 13.8 percent (SE=0.7) had only the latter (not shown in table). Lowering the annual threshold to 5 percent identifies more persons with 20 percent monthly burdens, but it increases the percentage with high annual, but not monthly, burdens. Clearly, within-year burden calculations offer a perspective on financial pressures that is missed by relying solely on annual burden measures at any threshold.
Burdens Inclusive of Employer Premium Contributions
follows much of the burden literature by focusing on out-of-pocket
spending. In contrast, one can in principle expand the definition of burden to include the reduction in after-tax income that occurs if employers reduce cash wages to offset ESI contributions. Including wage offsets in burdens, however, poses measurement problems: Are wages reduced for all workers offered coverage or only those taking it up? Does family coverage lead to larger wage reductions than single coverage? Do wage offsets reflect the health risks of workers and covered dependents? The literature provides no conclusive answers, yet the incidence of employer ESI costs depends greatly on one's assumptions (Selden and Bernard 2004
, ). For simplicity, employer premium contributions were assumed to be borne by workers taking up coverage without regard to their characteristics (or those of covered dependents).14
Average Shares of Medical Spending in Families with 20% Quarterly Burdens, 2003–2004
Adding subsidy-adjusted ESI wage offsets to both the numerator and denominator of the burden ratio greatly increases the prevalence of 20 percent burdens (results presented in Supporting Information, Appendix SA2
). The frequency of high monthly burdens was nearly 50 percent, not just among the poor but also in families with incomes up to four times FPL—especially those with ESI coverage. Even in the highest-income families, the high monthly burden rate was 26.2 percent. These results should perhaps be taken with a grain of salt, however. Imputed employer premium contributions may be a poor proxy for (unobserved) reductions in cash wages. Moreover, as one moves up the income scale, families may care more about annual burdens than within-year burdens, because assets may help them smooth consumption without incurring high-cost debt. Nevertheless, these results raise the possibility that within-year spikes in out-of-pocket spending, when added to burdens from employer premium contributions, may cause financial pressures throughout the income distribution.
Financing Burdens: Overview
The prevalence of high within-year burdens among low-income families raises the question of how so many low-income families managed to finance medical spending that, for at least a portion of the year, was such a large share of income. Are within-year burdens overstated because families were able to delay payments? Might some families have saved in anticipation of utilization spikes? To what extent were high burdens the result of transitory income declines among families with higher “permanent” incomes? Did low-income families have assets to help finance medical spending, and did they incur potentially costly nonmortgage debt? The next three subsections address these issues.
Financing Burdens: Smoothing Payments
Families may pay for care well after the event date due to billing delays, billing disputes, installment payments, or late payments. To gauge the sensitivity of within-year burden estimates to the (unobserved) timing of payments, within-year burdens were recalculated assuming that families paid for hospital events (inpatient, outpatient, and emergency room) in 12 equal monthly installments starting in the month care was received. This causes payments for some current year events to spill over to the following year, whereas payments for some prior year events spill over to the current year.15
Smoothing hospital bills has little qualitative effect on the results, especially among low-income families and among the publicly insured and uninsured (results presented in Appendix SA3
). Indeed, burden prevalence sometimes rises
slightly, in essence because smoothing prolongs the duration of financial burdens from prior year hospital care. Among the poor, the prevalence of 20 percent quarterly burdens rises from 31.7 to 32.7 percent, and the monthly burden rate is essentially unchanged. Among persons in families between 100 and 199 percent of the FPL, burden frequency declines by an insignificant 0.5 percentage points (quarterly) and by 1.6 percentage points (monthly). Indeed, even smoothing medical spending for all events
other than RX and premiums had little effect on burden rates.
Families may also be able to smooth out-of-pocket burdens by saving in anticipation of utilization. With the exception of emergency room visits, care for accidents, injuries, and colds, and prescriptions deemed episodic in nature, families were assumed to smooth the burden of all other health care spending over the 12 months leading up to and including the event date.16
This reduces high monthly burden frequencies by 6.5 percentage points (SE=1.2) in poor families and by 13.1 percentage points (SE=1.3) in families between 100 and 199 percent of FPL (not shown in table). Corresponding reductions in quarterly burden rates were 2.7 percentage points (SE=1.0) and 5.5 percentage points (SE=1.0). Although some of these reductions are large, they assume an unrealistically high degree of foresight, and within-year burden frequencies nevertheless remain high, especially among the poor.
To provide insights into why within-year burden prevalence among low-income families is so insensitive to payment smoothing, presents the composition of spending driving high quarterly burdens. Although inpatient hospital stays can be expensive, they are infrequent and averaged only 3.0 percent of spending in the peak-burden quarter among poor families. Emergency room visits accounted for a larger share for both the poor (6.5 percent) and the uninsured (10.1 percent). The two largest components of spending among low-income families were out-of-pocket premiums and RX. Spending on premiums averaged 19.7 percent of spending for the poor and 31.3 percent of spending for families between 100 and 199 percent of FPL. The RX spending shares were 38.2 percent for the poor and 28.0 percent for families between 100 and 199 percent of FPL. Among families with non-Medicare public coverage (predominantly Medicaid and SCHIP), RX spending accounted for 65.0 percent of spending in the peak burden quarter.17
Among families over four times FPL, the largest contributor to high monthly burdens was dental care—some of which might have been anticipated and/or paid in installments.
Financing Burdens: Transitory Income Shocks
Periods of high health care spending can be associated with reductions in earnings as workers spend time away from their jobs to receive care, recover from illness or injury, and care for family members.18
For some workers, these periods may be at least partially covered by paid sick leave, but many low-wage workers lack this benefit (Davis et al. 2005
). When a family's income declines as medical bills rise, the pressures of financing medical care coincide with the more basic financial implications of reduced income. Nonetheless, a family whose high monthly burden resulted in part from a large transitory income decline may have had greater capacity to accumulate assets before the income shock and greater subsequent ability to pay off debts than a family with the same peak month spending whose income was chronically low.
There is evidence that spikes in medical spending tend to coincide with dips in income among low-income families. For instance, consider poor working families with annual earnings over $1,000 who experience “moderate” utilization shocks, defined as annual expenditures exceeding $1,000 with at least one third of expenditure-weighted utilization in a single month. In the peak utilization month, 21.4 percent (SE=1.8) experienced at least a one-third dip in income relative to their annual average (not shown in table). For families with incomes above 400 percent of FPL, the corresponding figure was only 4.3 percent (SE=0.4). One should not infer causality from these descriptive results. Families over 400 percent of FPL may have high incomes in part because they did not experience major within-year declines in earnings, and a portion of the income declines among the poor simply reflects their greater overall income variability.19
The salient point is that dips in income likely compounded the problem of utilization spikes for a substantial share of low-income families.
To assess the impact of income fluctuations on the prevalence of within-year burdens, I recalculated within-year burdens holding income constant at its monthly average. For persons in poor families, the rate of high quarterly burdens declined modestly from 34.6 to 31.9 percent (SE=0.9) (not shown in table). The impact on the prevalence of high monthly burdens was also small: from 43.6 to 41.2 percent (SE=1.0). For persons in families between 100 and 199 percent of FPL, the quarterly measure fell from 23.7 to 20.0 percent (SE=0.8) and the monthly measure fell from 34.9 to 30.2 percent (SE=0.9). These differences are all highly statistically significant, but they are qualitatively modest. The effect of income variation was even smaller at higher income levels (and not always statistically significant). The explanation is that most within-year burdens arose from spikes in spending that were large enough to exceed 20 percent of monthly income regardless of whether it is smoothed.
A related question is whether low-income families with high burdens in the current year had higher incomes in the preceding year. Among persons in poor families with 20 percent annual burdens in their second year of MEPS, only 3.2 percent (SE=1.3) were in families whose incomes had been more than 50 percent of FPL greater in the preceding year (not shown in table). The corresponding rate among poor families who did not experience 20 percent burdens was nearly the same: 3.1 percent (SE=0.5). Thus, while year-to-year or within-year income declines might have exacerbated the financial pressures facing families, the prevalence of high burdens among low-income families was not primarily due to transitory dips in income among those who were usually much better off.
Financing Burdens: Assets and Debt
For many families, having assets or access to credit may be a necessary condition if they are to spend 20 percent or more of income on insurance and medical care while also paying for food, shelter, and other necessities. shows that for low-income families home ownership and the receipt of asset income were both strongly correlated with having high burdens.20
Receipt of asset income was nearly twice as high among poor families with high annual burdens as among the poor in general. The more salient result, however, is that most low-income families experiencing high within-year burdens did not have assets that produced income, and under half were homeowners.
Home Ownership, Receipt of Asset Income, and Non-Mortgage Debt, by Poverty Level and Burden, 2003–2004
also shows that low-income families with high burdens were more likely to have nonmortgage debt at the end of MEPS than were low-income families without such burdens. Poor families with high quarterly burdens were nearly three times as likely to have ended MEPS in debt as to have held income-producing assets that could have helped finance care. Moreover, debt amounts were correlated with high burdens among poor families with debt, averaging $32,768 (SE=9,853) if the family had experienced a high quarterly burden, versus $12,907 (SE=2,903) if not.21
Gathering results, a case can be made that high within-year burdens pose the potential for substantial financial pressures for low-income families. Within-year burdens are widespread even if one allows for payment smoothing, and they resulted primarily from spikes in medical spending rather than transitory dips in income. A substantial share of low-income families with high within-year burdens owned neither their own home nor income-producing assets. In order to finance high annual, quarterly, and monthly burdens, families likely reduced other nonessential spending, and when this proved insufficient relied on some combination of cash on hand or in bank accounts, other assets (if any), help from friends and relatives, and higher-cost borrowing with credit cards.