Health care and prescription drug spending by seniors: spending for health care and for prescription drugs among seniors has increased over the 1980-97 period; the seniors who had insurance coverage in addition to Medicare, on average, spent more on health care and prescription drugs than those who had Medicare coverage only

Monthly Labor Review, March, 2003 by Jessie X. Fan, Deanna L. Sharpe, Goog-Soog Hong

Discussion

As the baby-boom generation ages, health care costs become an important area of concern. Typically, seniors spend more on health care than do younger members of the population, as they tend to have more health problems with greater severity. Medicare, which covers virtually all seniors aged 65 and older, was designed to help seniors avoid catastrophic costs associated with hospital stays and use of medical services. The original designers of the plan, however, did not foresee the impact that an aging population, increased longevity, and rising health care costs would have on the ability of Medicare to pay claims. The lack of prescription drug coverage as well as other coverage gaps has encouraged many seniors to purchase additional health insurance to supplement their Medicare coverage.

Points for debate. The dramatic rise in prescription drug costs in recent years has sparked a debate. Some argue that seniors would be better off if prescription drugs were covered under Medicare. (26) Others cite the size of Medicare's current financial liabilities and contend that such a plan would wastefully duplicate coverage that nearly 3 in 4 seniors already have through Medicaid and private insurance. This group of debaters prefers to allow seniors to choose their health coverage in the market and giving them tax-advantaged ways of saving to cover their own health expenses such as using a Roth IRA as a medical savings account. (27) Still others would target the pharmaceutical companies themselves, requiring price controls or shorter periods of patent protection. (28)

There are problems with each solution offered. Covering prescription drugs under Medicare will certainly increase the financial demands placed on the Nation's largest public insurance program. Meeting these financial demands could mean a reallocation of public dollars to the program at the expense of meeting other needs. However, to leave it to the seniors to cover their own health expenses requires the means to do so be available, both in terms of market choices and seniors' own financial resources. Currently, many insurers are cutting back on coverage and passing additional costs on to the ultimate health consumer, reducing market choices. Seniors with relatively high income and asset holdings may be able to finance their health care needs through the purchase of insurance or out-of-pocket payments. Seniors with low income and few assets can draw on Medicaid. Seniors who have low to moderate income and asset holdings, however, may not be able to finance health care or prescription drug costs. While the idea of using a Roth IRA to help cover health costs has appeal, the law governing Roth IRAS would have to be changed. Currently, only earned income can be deposited into an Roth IRA and only 18 percent of those aged 65 and older have earned income from employment. Further, unless deposits are held for 5 years, they cannot earn interest tax-bee. This rule would discourage the type of deposits and withdrawals needed to pay for health care goods and services? Placing price controls on, or reducing patent protection for prescription drugs could discourage investment in research and development of new drugs. And, although the cost of prescription drugs is high, to the extent such drugs help seniors to avoid or minimize hospital stays, they might lead to a cost savings overall.