When Medicare is not enough

Jake Smith, a man who's good for what he owes, sold his paid-off home of 33 years recently to settle about $15,000 in medical debt that wasn't covered by Medicare.

Smith, 80, a retired truck driver who volunteered for the Navy at age 17, relies on basic Medicare as his only medical insurance. More than one in 10 older Americans have only Medicare, the federal program that pays a portion of doctor and hospital bills but leaves the rest to patients.

Out-of-pocket payments by Medicare recipients such as Smith will continue to climb as federal officials try to keep the program from consuming an ever larger share of government spending, health-care researchers say.

Smith's wife, Christine, died of cancer last year. Selling the home they'd shared – and moving to senior housing downtown – was the only way he could catch up on the bills from doctors and Duke Hospital for her past care.

“I believe in paying what I owe,” Jake Smith said at his small apartment on Crest Street. “Just as soon as they come in, I pay them.”

Health-insurance counselors in North Carolina say the number of questions they receive about coverage under basic Medicare has more than doubled – to more than 1,200 a month – during the past three years.

“It's very shocking to people when they go on Medicare,” said Gina Upchurch, executive director for Senior Pharmassist, a Durham nonprofit agency that helps older people with prescription drug costs. “You sort of have this view that ‘This means my health care will be taken care of.' But once they get on Medicare, it's not all easygoing from there on out.”

In Smith's case, his wife's small pension from her days as a Duke employee put the couple over the eligibility limit for Medicaid, the federal health insurance for low-income and disabled people. But the Smiths couldn't afford a private policy to cover the gaps that Medicare leaves after its coverage maxes out. Such policies in North Carolina can annually cost less than $1,000 or more than $3,000 per person, depending on a range of factors.

“Medicare doesn't have an out of-pocket limit, and so people who don't have supplemental insurance – a Medigap plan or something from a former employer – can run up very high bills,” said Paul Precht, policy director of the Medicare Rights Center in New York City.

“The 20 percent deductible that they pay for doctor visits is affordable, if you are talking about a primary-care visit,” Precht said. “But if you have a lot of tests and treatment, that can run up in the thousands of dollars.”

Older people with basic Medicare, plus a supplemental policy and a prescription drug plan, can still feel the pinch of out-of-pocket costs. Additional costs for this group are coming in 2009, including increases for people on Medicare's prescription drug plan, who already face possible out-of-pocket expenses of more than $4,000 each year.

“This is a very real issue, and as health-care costs rise, it will only get worse,” said Jon Oberlander, a professor of health policy at UNC Chapel Hill. “Medicare has never covered all of beneficiaries' health-care costs; and with the premiums and cost-sharing, the bill can add up.”

Medicare costs soar

When Medicare was created in 1965, about half of Americans over 65 had no health insurance, according to the Congressional Budget Office. The insurance was designed to protect Americans from the rising health-care costs of aging, costs that sometimes caused insurers to drop older people from coverage. In the decades since, the program has come to insure nearly every older American – and to consume about 16 percent of federal spending.

Along with the growth in Medicare's cost have come efforts to increase recipients' share of the burden. Medicare beneficiaries pay about 28 percent of the cost of care, according to the Kaiser Family Foundation. During a six-year period studied by researchers, median out-of-pocket spending by Medicare beneficiaries rose by 30 percent, to more than 15 percent of their incomes.

“Over time, the existing burden on beneficiaries will grow even faster than the ‘unsustainable' growth in federal Medicare, and much faster than the incomes of the elderly and disabled,” Marilyn Moon, a health-care policy analyst at the nonpartisan American Institutes for Research, wrote in a recent paper on the issue.

Moon estimates that costs incurred by Medicare beneficiaries will more than double during the next two decades, far outpacing overall spending for the program. If increases in out-of-pocket spending continue, health care would be less affordable for all but the highest-income Medicare beneficiaries, according to researchers at the Kaiser Family Foundation.

Income fixed, costs up

It's already inching out of the realm of affordability for many.

Marvin and Joyce Johnson of Harnett County have basic Medicare, a supplement paid for by Marvin's former employer and prescription drug insurance. But it's not cheap.

“I'm having to carry a Medigap policy, and it's costing me and my wife $444 a month just to carry it,” said Marvin, 82.

Payments for the Johnsons' basic Medicare and for their drug plan come out of their Social Security checks each month. Between their Medigap insurance and those deductions, health insurance is costing them more than $8,600 annually from their fixed income.

“What bothers me is that the … insurance companies were given the notice to write these health-care bills by the federal government,” Marvin Johnson said. He was referring to complaints from advocates during the passage of the 2003 Medicare prescription drug bill that politicians and government officials were in the sway of pharmaceutical and insurance companies that stood to benefit.

“They didn't give a damn about the senior citizens,” Johnson said. “They spent more money on the prescription drug program telling us how good it was than on the program.”

The Johnsons' situation, with supplemental insurance paid by a former employer, will likely grow less common, said Oberlander, the UNC researcher.

“Employers are cutting back on retiree health insurance, so as we go forward, there may be a growing group that relies on Medicare alone,” he said “That means they will face rising cost-sharing.”

Meanwhile, seven miles from his former home in a woodsy area south of downtown, Jake Smith welcomed a visitor to his apartment.

“Look around – you've seen it,” he said. Smith says his new apartment – a bedroom, a bathroom and a kitchenette – was the least expensive place he could find.

“I miss being able to go out in the yard without worrying about somebody shooting me,” Smith said.

A records check shows that police calls are nine times as frequent on Crest Street, just blocks from Duke Hospital, as they were at Smith's former home on South Alston Avenue. That's where the bills started pouring in after Christine Smith's cancer treatment, including a deductible of nearly $1,000 for each of her four hospitalizations.

Officials at Duke said they couldn't discuss Smith's situation, but noted that the hospital works with thousands of patients a year to arrange payments, often through sources including Medicaid.

“Unfortunately, these programs do not provide coverage to everyone,” spokesman Doug Stokke said in a statement. “So, generally speaking, once payment options are exhausted, patients may be eligible for a charity care write-off for all or part of their outstanding balance, after completing an application that documents financial need based upon the patient's income, family size, and balance.”

Smith, whose bad back bothers him, is having his own health problems now, and bills keep coming.