This study is the first to directly measure the burden represented by out-of-pocket medication expenses faced by low-income households after paying for basic living expenses of food, clothing, transportation, and housing costs. Our analysis illustrated that poor families have very few resources available for anything beyond basic living needs, even when they have Medicaid coverage. There was no great reservoir of discretionary funds to pay for increases in cost-sharing under Medicaid and Medicare Part D. We also found that these households spend a relatively large proportion of their available resources on medicines and other health care costs and that Medicaid provided less than comprehensive protection against these expenses. This pattern held true for both single-person and multiple-person Medicaid households. We found that the large allocation of household expenditures to medications increased considerably with worsening health, to a high of 30% of non–basic living needs expenditures in both Medicaid and non-Medicaid families reporting poor health. In other words, after paying for basic living expenses and health care costs, older Medicaid families in poor health had, on average, only $16 each week for any discretionary purposes. Older non-Medicaid families in poor health had only $22 left each week after paying for basic living needs and medical care costs. This burden will more than likely worsen in the future as individuals reporting poor health are at high risk for dying or requiring additional health care resources (Desalvo, Fan, McDonell, & Fihn, 2005
Does our conceptual framework of “basic living needs” versus “discretionary” expenditures offer valid insights? Clearly, it is intuitively appealing to assess health care policies against the protection they offer to sick families in need of food, clothing, housing, and transportation. However, it may also be true that spending for basic living needs contains discretionary components (e.g., steak vs. hamburger). In fact, our analyses showed little evidence of optional spending within the basic living needs categories. For food costs, our single-person Medicaid homes spent only $38 per week, while the multiple-person Medicaid homes spent $75 per week to feed three people. It should be noted, however, that the consumption portion of the HRS does not identify whether food stamps were used for these expenses and helped in stretching the family budget for food. For housing costs, their monthly costs ranged from only $362 to $522. Single- and multiple-person non-Medicaid homes spent between $474 and $604 on monthly housing costs and $43 to $58 on weekly food purchases.
The results of this study should be interpreted in light of the strengths and weaknesses of the HRS data. We detected considerable discrepancies between the reported incomes of poor households and their reported expenditure levels. For instance, Medicaid households at the median of household income (~$7,689) reported approximately $11,030 in expenses. This finding has been noted elsewhere with other expenditure surveys of low-income families (Tan, 2000
). A possible reason for the discrepancy is the under-reporting of income by respondents, although the HRS employs bracketed survey techniques to collect these income data that provide more reliable estimates (Juster & Suzman, 1995
). Other possible explanations include poor families who may be drawing on their limited savings to make necessary expenditures, purchasing items on credit, or borrowing money or receiving assistance from family members or friends. Furthermore, our estimates of household expenditures are lower than those reported in the 2001 Consumer Expenditure Survey. In that survey, households with incomes of $5,000 to $9,999 spent, on average, $16,625 (compared to our $12,498), while those making $10,000 to $14,999 spent $20,642 (compared to our $17,421; U.S. Department of Labor Bureau of Labor Statistics, 2003
Given the overall population focus of the HRS, our sample was highly selective, which resulted in relatively small sample sizes. Because of this, we limited our analysis to larger subgroups, such as spending quintiles, and we present only bivariate relationships. Future work should replicate these results with larger populations, account for overall wealth, and use multivariate techniques to explore the relationships between ability to pay and key demographic and socioeconomic factors.
It is particularly important to isolate the effects of poor health status on potentially catastrophic health care costs from those of other factors such as older age or lower income. In addition, the impact of out-of-pocket payments for medications is not fully captured by examining levels of spending. Some poor households without access to non-income resources must forego necessary care rather than incur further debt (Piette, Heisler, & Wagner, 2004b
; Rector & Venus, 2004
) Also, a frequently reported strategy for avoiding medication costs is to obtain free samples from physicians or to gain access to pharmaceutical company free care programs (Cox, Jernigan, Coons, & Draugalis, 2001
). Households that relied upon such strategies to maintain required therapy would have reported lower levels of medication spending in our analyses (Soumerai, Ross-Degnan, Avorn, McLaughlin, & Choodnovskiy, 1991
; Tamblyn et al., 2001
). Similarly, households that forego medications because of costs would have spending levels that underestimate their required need. However, our estimate of $463 for out-of-pocket medication spending for dual-eligible beneficiaries in the HSR compares reasonably well with our internal estimate of $330 for the same group in the 2001 Medicare Current Beneficiary Survey and an external estimate of $510 from the 2003 Medical Expenditure Panel Survey (The Henry J. Kaiser Family Foundation, 2003
). Last, our analysis did not account for spending on taxes, as these data are not captured in the HRS. This may have resulted in an overestimation of available income, but only for the few households with gross incomes above the taxation thresholds (Butrica, Goldwyn, & Johnson, 2005
Our findings have implications for estimating how much older poor adults can afford to pay for medications, especially in light of their transition to the MMA rules after January 2006 (Crowley, Ashner, & Elam, 2003
). Of particular concern are Medicaid households that had been paying $0.50 to $1.00 co-payments per prescription or even requesting Medicaid co-payment waivers. Even with the more generous coverage before Part D, they were still devoting between 9% and 30% of available non–basic living needs resources to medications. Given these slim margins, it is difficult to know how these households will manage the co-payment increases under the MMA. Those who continue to participate in Medicaid will likely face higher cost-sharing and, consequently, greater financial burden as states attempt to reign in escalating drug costs.
It is important to remember that our Medicaid-enrolled study population had fairly complete health and drug coverage. Disparities in household income and spending for health care are likely to be far greater for the poor and near-poor Medicare beneficiaries who are not eligible for Medicaid or for other public insurance programs with drug benefits. Policies that do not account for a household’s available resources and ability to pay for cost-sharing for medications may have serious negative consequences for important subgroups of the poor and near poor, even those with insurance coverage.