Employee Benefits Research Institute report

A monthly research report from the EBRI Education and Research Fund 2015 Employee Benefit Research Institute

February 2015 No. 411

Utilization Patterns and Out-of-Pocket Expenses for Different Health Care Services Among American Retirees By Sudipto Banerjee, Ph.D., Employee Benefit Research Institute

A T A G L A N C E

This study separates the more predictable health care expenses in retirement for older Americans (ages65 and above) from the less predictable ones. Based on utilization patterns and expenses, doctor visits,dentist visits and usage of prescription drugs are categorized as recurring health care services. Overnighthospital stays, overnight nursing-home stays, outpatient surgery, home health care and usage of specialfacilities are categorized as non-recurring health care services.

The data show that recurring health care costs remain stable throughout retirement. The average annualexpenditure for recurring health care expenses among the Medicare-eligible population was $1,885.Assuming a 2 percent rate of inflation and 3 percent rate of return, a person with a life expectancy of 90would require $40,798 at age 65 to fund his or her recurring health care expenses. This does not includerecurring expenses like insurance premiums or over-the-counter medications.

Usage and expenses of non-recurring health care services go up with age. Nursing-home stays inparticular can be very expensive. For people ages 85 and above, the average and the 90th percentile ofnursing-home expenses were $24,185 and $66,600 during a two year period, respectively.

Nursing-home stays, home health care usage, and overnight hospital stays are much higher in the periodpreceding death. More than 50 percent in every age group above age 65 received in-home health carefrom a medically trained person before death. For those ages 85 and above, 62.3 percent had overnightnursing-home stays before death and 51.6 percent were living in a nursing home prior to death.

Some recurring and non-recurring expenses were also much higher before death.

Usage of recurring health care services generally go up with income and usage of non-recurring healthcare servicesexcept outpatient surgery and special facilitiesgoes down with income.

The top income quartile spent significantly more on nursing-home and home health care expenses thanthe rest. This could be a result of Medicaid coverage for the lower-income, lower-asset groups.

Women above 85 have significantly higher nursing-home usage than men. The rest of the differencesbetween men and women are small.

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ebri.org Issue Brief February 2015 No. 411 2

Sudipto Banerjee is a research associate at the Employee Benefit Research Institute. This Issue Brief was written with assistance from the Institutes research and editorial staffs. Any views expressed in this report are those of the author, and should not be ascribed to the officers, trustees, or other sponsors of EBRI, EBRI-ERF, or their staffs. Neither EBRI nor EBRI-ERF lobbies or takes positions on specific policy proposals. EBRI invites comment on this research.

Copyright Information: This report is copyrighted by the Employee Benefit Research Institute (EBRI). It may be used without permission but citation of the source is required.

Recommended Citation: Sudipto Banerjee, Utilization Patterns and Out-of-Pocket Expenses of Different Health Care Services Among American Retirees, EBRI Issue Brief, no. 411, (Employee Benefit Research Institute, February 2015).

Report availability: This report is available on the Internet at www.ebri.org

Table of Contents Introduction .......................................................................................................................................................... 4

Data ..................................................................................................................................................................... 4

Utilization of Different Health Care Services ............................................................................................................. 4

Recurring and Non-Recurring Health Care Services .................................................................................................. 5

Out-of-Pocket Expenses for Health Care .................................................................................................................. 6

Utilization of Different Health Care Services Before Death ......................................................................................... 8

Out-of-Pocket Costs for Health Care Services before Death ....................................................................................... 8

Differences between Different Income Groups ......................................................................................................... 9

Differences between Men and Women .................................................................................................................. 13

Conclusion .......................................................................................................................................................... 16

References .......................................................................................................................................................... 20

Endnotes ............................................................................................................................................................ 20

Figures Figure 1, Utilization of Different Health Care Services in the Two-Year Period (20102012), by Age Group ................... 7

Figure 2, Recurring Health Care Expenses in the Two-Year Period (20102012), by Age Group ................................... 7

Figure 3, Non-Recurring Health Care Expenses in the Two-Year Period (20102012), by Age Group .......................... 10

Figure 4, Utilization of Different Health Care Services Among Those Who Died During the Two-Year Period (2010 2012) ..................................................................................................................................................... 10

Figure 5, Recurring Health Care Expenses For Those Who Died During the Two-Year Period (20102012) ................. 11

Figure 6, Non-Recurring Health Care Expenses For Those Who Died During the Two-Year Period (20102012) .......... 11

Figure 7, Utilization of Different Health Care Services in the Two-Year Period (20102012), by Income Quartile for Those Ages 6574 .................................................................................................................................. 12

Figure 8, Utilization of Different Health Care Services in the Two-Year Period (20102012), by Income Quartile for Those Ages 7584 .................................................................................................................................. 12


Figure 9, Utilization of Different Health Care Services in the Two-Year Period (20102012), by Income Quartile for Those Ages 85 and Older ......................................................................................................................... 14

Figure 10, Average Recurring Health Care Expenses in the Two-Year Period (20102012), by Income Quartile for Those Ages 6574 .................................................................................................................................. 14

Figure 11, Average Non-Recurring Health Care Expenses in the Two-Year Period (20102012), by Income Quartile for Those Ages 6574 .................................................................................................................................. 15

Figure 12, Average Recurring Health Care Expenses in the Two-Year Period (20102012), by Income Quartile for Those Ages 7584 ............................................................................................................................................ 15

Figure 13, Average Non-Recurring Health Care Expenses in the Two-Year Period (20102012), by Income Quartile for Those Ages 7584 .................................................................................................................................. 17

Figure 14, Average Recurring Health Care Expenses in the Two-Year Period (20102012), by Income Quartile for Those Ages 85 and Older .................................................................................................................................. 17

Figure 15, Average Non-Recurring Health Care Expenses in the Two-Year Period (20102012), by Income Quartile for Those Ages 85 and Older ......................................................................................................................... 18

Figure 16, Utilization of Different Health Care Services in the Two-Year Period (20102012), by Age Group and Gender ............................................................................................................................................................. 18

Figure 17, Average Recurring Health Care Expenses in the Two-Year Period (20102012), by Age Group and Gender ................................................................................................................................................... 19

Figure 18, Non-Recurring Health Care Expenses in the Two-Year Period (20102012), by Age Group and Gender ...... 19


Utilization Patterns and Out-of-Pocket Expenses for Different Health Care Services Among American Retirees By Sudipto Banerjee, Ph.D., Employee Benefit Research Institute

IntroductionHealth care is one of the key components of retirement expenses. Prior research by the Employee Benefit Research Institute (EBRI) has shown that health care expenses represent the second largest share of household expenses after home-related expenses for retired Americans (Banerjee 2012, 2014). Also, health care is the only component of household expenditure that increases with age, both in terms of absolute dollars and as a share of total household expense. For example, in 2011, average annual out-of-pocket health care expenses for a household between ages 65 and 74 was $4,383 capturing on average 11 percent of total household expenses. For households ages 85 and above, the average out-of-pocket health care expense increased to $6,603 capturing 19 percent of household expenses. Uncertainty about some of the key components of health care costs, like diagnosis of a life-threatening condition or needing long-term care etc., causes many retirees to be apprehensive about their health care cost needs. Also, for many, these expenses could be back-loaded, reaching peaks toward the end of life when resources are slim. So, for successful management of resources in retirement, it is crucial to plan well for health care expenses. Although some of these expenses are uncertain, some are more regular in nature and more predictable. A good plan to tackle health care expenses in retirement may include separate preparations for more predictable and less predictable needs and a contingency plan for back-loaded expenses.

This study has two primary goals. First, to separate the more predictable health care expenses from the less predictable ones. Utilization patterns of different health care services across different age groups and the nature of the service are combined to distinguish between recurring and non-recurring expenses. Second, to take a separate look at the end-of-life utilization and expenses for different health care services and compare them to utilization and expenses for surviving members of the same age cohorts. The study also measures how utilization and expenses differ across different income groups and gender.

Data The data for this study come from the Health and Retirement Study (HRS), a study of a nationally representative sample of U.S. households with individuals over age 50. It is the most comprehensive survey of older Americans in the nation and covers topics like health, assets, income, and labor-force status in detail. It is a biennial longitudinal survey with survey waves in even-numbered years beginning in 1992. The initial sample consisted of individuals born between 1931 and 1941 and their spouses, regardless of their birth year. Newer cohorts have been added in the following years. The study is sponsored by the National Institute of Aging (NIA) and the Social Security Administration (SSA) and is administered by the Institute for Social Research (ISR) at the University of Michigan.

Two separate modules from the 2012 HRS are used in this study: first, the 2012 core files, which include information from interviews with the panel members; and second, the 2012 exit files which contain information obtained from proxy informants for panel members who have died since their last interview in the 2010 round of HRS. Most often the proxy informants are family members (widow/widower, son, daughter etc.) who are knowledgeable about the health, family and financial situation of the deceased. The sample includes only the Medicare-eligible panel members (ages 65 and above). Throughout the study they are classified into three different age groups: ages 65-74 (age group I), ages 75-84 (age group II), and ages 85 and above (age group III).

Utilization of Different Health Care Services HRS panel members are asked in detail about their health care use. First, they are asked if they have used any of the following services in the past two years (or since their last interview, for existing panel members). If they answer in the


affirmative, then a battery of questions are asked about the frequency of use, insurance coverage and out-of-pocket costs. The services they are asked about are:

Overnight stay in a hospital.

Overnight stay in a nursing home.

Home health care (from a medically trained person).

Outpatient surgery.

Special facilities (such as adult care center, outpatient rehabilitation programs, physical therapy, elderlytransportation etc.).

Dentist.

Prescription drugs.

Doctor visits (including clinic visits, emergency room visits, and house calls).

Figure 1 shows the utilization rates of different health care services in the two-year period preceding the 2012 HRS interviews. Doctor visits and prescription drugs have the highest utilization rates. Also, doctor visits are nearly identical across all three age groups: 92.8 percent for age group I, and 93.3 percent for both age groups II and III. Prescription drug usage shows some increase with age: 88.2 percent for age group I, 92.3 percent for age group II and 94.0 per-cent for age group III. The next highest utilization rates are for dentists, the only recurring service that records a decline in usage with age. Just over 62 percent in age group I have seen a dentist in the past two years, which goes down to 55.2 percent among those in age group III.

For the rest of the services, the utilization rates are much lower (at least in the early ages), but show a steady increase with age (except for outpatient surgeries among age group III). Overnight hospital stays increase from 26.9 percent among age group I to 42.5 percent among age group III. Overnight nursing-home stays increase from 3.3 percent among age group I to 23.3 percent among age group III. Figure 1 also shows the percentage of people living in a nursing home at the time of the interview:1 0.9 percent for age group I which increases to 15.3 percent for age group III. In both age groups I and II, 1 in 5 group members had an outpatient surgery, but the rate dropped to 16.2 percentpercent for age group III. Also, slightly more than 1 in 4 in age group III received home health care and special facility services.

Recurring and Non-Recurring Health Care Services Based on the utilization rates and the nature of the services, the eight different types of health care services mentioned above are classified into:

Recurring Services: these include doctor visits, prescription drug usage and dentist services. Doctor visits and prescription drugs have very high usage and the usage is consistent across different age groups. Although dental services do not have as high usage as the other two, dental services still have high usage across all age groups. Also, it is assumed that those who need dental care will need it on a regular basis.

Non-Recurring Services: these include the rest of the servicesovernight hospital stay, overnight nursing-home stay, home health care, outpatient surgery and special facilities.


Out-of-Pocket Expenses for Health Care Recurring Expenses: Figure 2 shows the mean, median and 90th percentile of recurring out-of-pocket

expenses by age group for the two-year period between 2010 and 2012. These statistics are conditional on having a positive out-of-pocket expenditure. Although expenses for doctor visits and dentist visits are reported for the entire two-year period, prescription drug expenses are actually reported as monthly expenses. One observation stands out from Figure 1: there is very little variation in these expenses across age groups. For example, the mean, two-year expenditures on prescription drugs are $1,867, $1,820, and $1,918 respectively for age groups I, II and III. Similarly, for dentist visits they are $1,125, $1,183 and $1,024 for the respective age groups. For doctor visits, there is an increase in the mean, from $709 for age group II to $915 for age group III. But overall, these expenses are stable throughout retirement. That is another reason why these three items are lumped together as recurring health care items, which enables a calculation of average annual out-of-pocket expenses on recurring health care items. Adding all three items together and assuming that the expenses for doctor visits and dentist visits occurred at regular intervals during the two-year period, the average, annual out-of-pocket expenses on recurring health care items is $1,885 for those ages 65 and above.

This can be used to calculate the amount of money needed at age 65 to cover recurring health care expenses throughout retirement. But the calculations require assumptions about expected lifespan, rate of return and inflation. For example, assuming 2 percent inflation, 3 percent rate of return and an expected lifespan of 90, one would need $40,798 at age 65 to cover the average out-of-pocket expenses for recurring health care needs throughout retirement. The calculation can be easily modified for alternative assumptions.

Non-Recurring Expenses: Figure 3 shows the mean, median and 90th percentile of non-recurring out-of-pocket expenses by age group for the same period. Again, the statistics are conditional on a positive expenditure. Unlike recurring expenses, expenditures on most of the non-recurring items go up with age. For example, average out-of-pocket expenses for nursing-home stays are $8,902, $16,948 and $24,185 for age groups I, II and III respectively. Similarly, average out-of-pocket expenses for home health care are $1,285, $2,310 and $4,693 for the respective age groups. As Figure 1 shows, the usage of these services also goes up significantly with age. But, since the averages are conditional on positive expenses, their increase with age is not a function of more people using the services, but rather people using the services more intensely.

Some of these services, most notably nursing-home stays, are low probability but high impact (on resources) services. Among those 85 and above, 23.3 percent had overnight stays in a nursing home or long-term care facility, but the average expense was $24,185. Few nursing-home stays are covered by Medicare only stays which are medically necessary and include care provided in a skilled nursing facility. Medicare does not cover custodial care, which is the most common form of nursing-home care. Medicaid covers this type of care but only after people have little resources left (Supplemental Security Income (SSI) limits for singles and couples are $2,000 and $3,000 respectively, but this does not include primary residence). Until that point, nursing-home stays can be very expensive. To understand the extent of these expenses, the 90th percentiles are reported. For those 85 and above, the 90th percentile for out-of-pocket nursing-home expenses were $66,600. For this age group home-health care can be very expensive as well: the 90th percentile for home health care was at $19,001.

Unlike the case of recurring health expenses, it is not straightforward to estimate the amount needed at retirement to cover all the non-recurring health care expenses throughout retirement, because both the usage and intensity of usage of these types of services are very uncertain. Also, it is not the aim of this study to estimate the sum of all health care expenses in retirement. There are some studies that provide such estimates. A recent EBRI study estimates that to have a 90 percent chance of covering all health care costs in retirement a man and a woman would need $116,000 and $131,000 respectively (Fronstin, Salisbury and VanDerhei, 2014). Fidelity Benefits Consulting estimates a 65-old couple retiring in 2014 would need $220,000 to cover medical expenses, excluding long-term care, in retirement. However, the goal of this study is to provide an idea about how that total cost can be divided into recurring and non-recurring costs to help retirees in financial planning.

OvernightHospital Stay

OvernightNursing-

Home Stay

Living in aNusing Homeat Interview

Home HealthCare

OutpatientSurgery

SpecialFacility Dentist

PrescriptionDrugs Doctor Visits

6574 26.9% 3.3% 0.9% 8.3% 20.9% 15.0% 62.6% 88.2% 92.8%7584 34.1% 8.3% 3.5% 13.2% 21.8% 18.1% 58.3% 92.3% 93.3%85+ 42.5% 23.3% 15.3% 26.1% 16.2% 26.8% 55.2% 94.0% 93.3%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Figure 1Utilization of Different Health Care Services

in the Two-Year Period (20102012), by Age Group

Source: Employee Benefit Research Institute estimates from Health and Retirement Study (HRS), 2012.

Dentist Visits Doctor Visits PrescriptionDrugs Dentist Visits Doctor VisitsPrescription

Drugs Dentist Visits Doctor VisitsPrescription

Drugs6574 7584 85+

Median $500 $300 $984 $500 $300 $984 $400 $400 $984Mean $1,125 $749 $1,867 $1,183 $709 $1,820 $1,024 $915 $1,91890th Percentile $3,000 $2,000 $4,800 $3,000 $2,000 $4,800 $2,500 $2,000 $4,800

$-

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

Figure 2Recurring Health Care Expenses in the

Two-Year Period (20102012), by Age Group




Figures 2 and 3 show out-of-pocket expenses only for the panel members who were living at the time of the 2012 interview. But some panel members died after their 2010 interviews and are hence excluded from the sample used above. And, it can be argued that the utilization rates of different types of health care services and the associated costs could be different in the period immediately preceding death. So, it is important to analyze the data for the deceased sample and find out if there are discernible differences.

Utilization of Different Health Care Services Before Death Figure 4 shows the utilization rates of different health care services for the panel members who died after their 2010 interview. This sample had 984 observations. One thing to notice here is that the period for which the services are reported is not the same for everyone, as members died at different points after their 2010 interviews. Since usage and cost questions are asked for the period since their last interview, it is not possible to compare their usage or costs for a given period of time, as done in the earlier section. It is better to discuss Figure 4 in contrast to Figure 1 to understand the differences in health care usage between end-of-life and prior years in retirement.

Differences in Recurring Care: Actually, there are very little differences in usage of recurring health care items, except for dentist services. For both doctor visits and prescription drugs, every age group had more than 90 per-cent usage, which is not very different from Figure 1. However, dentist visits were significantly lower in the last months of life. For age group 1, Figure 4 had a utilization rate of 28.6 percent for dentist visits compared to 62.6 percent in Figure 1. The differences were large for other age groups as well.

Differences in Non-Recurring Care: As expected, there were large differences in usage of these services.

Overnight Hospital Stays70.7 percent those who died between ages 65 and 74 (age group I) had an overnight hospital stay compared to 26.9 percent among the surviving members of the same age group. For every age group, overnight hospital stays are higher than in Figure 1, but the difference goes down with age.

Overnight Nursing-Home StaysAre also much higher in Figure 4. For age group I, Figures 1 and 4 had respective utilization rates of 3.3 percent and 31.1 percent. The gap (in percentage points) increases with age. For age group III, the respective utilization rates were 23.3 percent and 62.3 percent. So, the chances of entering a nursing home during the one or two years prior to death are much higher.

Living in a Nursing Home at the Time of DeathThis is not necessarily the place of death, but reflects living arrangements prior to death. Again, there are large differences from Figure 1. For example, among the surviving members who were ages 85 and above, only 15.3 percent were living in a nursing home at the time of their interview compared to 51.6 percent among those who died. So, the majority of those who died after 85 were living in a nursing home.

Home Health CareLike other non-recurring care items, usage of home health care was also much higher for those who died compared to surviving members within each age group. But for the deceased, usage of home health care across the three age groups didnt vary at all, measuring 51.7 percent, 50.1 percent and 52.2 percent for age groups I, II and III respectively. Among the surviving panel members, the respective utilization rates were 8.3 percent, 13.2 percent and 26.1 percent. This shows that irrespective of age, the majority of retirees needed home health care prior to their death.

Out-of-Pocket Costs for Health Care Services before Death Recurring Expenses: Figure 5 shows the mean, median and 90th percentiles of recurring health care

expenses prior to death for the different age groups. Here the monthly prescription drug expenses are reported unlike Figure 2 where the monthly numbers were multiplied by 24 to match the time period for rest of the expenses shown. Although, it is informative to compare the numbers in Figure 5 to those in Figure 2, it should be kept in mind that the reference periods for the numbers in the two figures are not the same, as explained above. But to help the comparison,


the time between the deceaseds last interview and death was calculated and the average for that was 11.5 months. So, for a crude comparison of doctor visit and dentist visit expenses, the time frame for Figure 5 can be roughly set at one year, if we assume that these services occurred on a regular basis. Note that this does not affect the comparison of prescription drug expenses, because they were actually reported on a monthly basis.

Given that, the expenses reported in Figure 5 are definitely much higher than Figure 2. For prescription drugs: the monthly averages were $183, $111, and $113 for age groups I, II and III among the deceased compared to $78, $76 and $802 for the respective age groups among the surviving members. For doctor visits: the two-year averages were $749, $709 and $915 for the surviving members in Figure 2 compared to the one-year averages of $1,706, $1,906 and $1,435 for the deceased members in Figure 5. The expenses for the deceased were higher than those for the surviving members for dentist visits as well.

Non-Recurring Expenses: Figure 6 shows the mean, median and 90th percentiles for the non-recurring expenses prior to death among different age groups. Because of the difference in the reference period, it is not exactly clear how these numbers can be compared to those reported in Figure 3, for the surviving members. Nevertheless, some observations can be made when examining the numbers in Figure 6, even if we assume they are for a two-year period (which is the upper bound for the reference period). First, hospital expenses are much higher, especially for the younger age groups, I and II. For example, for age group I, surviving members had an average hospital expense of $2,099 compared to $4,590 for deceased members. Average in-home care expenses were higher for the deceased in the two older age groups, particularly in age group II, $4,364 compared to $2,310 for the surviving members.

Differences between Different Income Groups Difference in Utilization of Health Care Services: Figures 7, 8, and 9 show the utilization rates of

different health care services by income quartile for age groups I, II and III respectively. This sample includes only the surviving members. There could be two different effects underlying the income group trends. First, past studies have shown that people with high income or wealth generally have better health conditions (Adler et al., 1994; Banks et al., 2009). This could lower usage of health care services for higher income groups. On the other hand, people with higher income could be in better health because they spend more on preventive care. This could increase usage of at least some health care services.

Figure 7 shows that doctor visits increase with income, although the increases are not very high. From 88.0 percent for the bottom income quartile, doctor visits increase to 95.5 percent for the top income quartile. But dentist visits show much stronger correlation with income. Only 43.5 percent in the bottom income quartile visited a dentist in the two-year period. For the next three income quartiles, the utilization rates were 56.6 percent, 70.2 percent and 80.1 percent respectively. Overnight hospital stays, overnight nursing-home stays, and usage of home health care all go down as income goes up. This is consistent with the findings of earlier studies mentioned above.

Figure 8 shows the utilization rates for age group II, people between ages 75 and 84. The trends with respect to income groups are identical to Figure 7very strong positive correlation with usage of dentist services and income; while overnight hospital stays, overnight nursing-home stays, and usage of home health care each go down as income rises; and doctor visits and outpatient surgeries go up with income.

Figure 9 shows the utilization rates for age group III, people ages 85 and above. For the most part, the trends with respect to income are the same as those seen for the two younger age groups. But, there are some differences. For example, overnight hospital stays actually go up with income for the bottom three quartiles but drop a little bit for the top income quartile.

From Figures 7, 8 and 9 it is clear that dental services are very strongly correlated with income. Also, for higher income groups, usage of recurring services is higher and non-recurring services is lower.

Hospital In-HomeCareNursingHome

OtherCare

OutpatientSurgery Hospital

In-HomeCare

NursingHome

OtherCare


In-HomeCare

NursingHome

OtherCare

OutpatientSurgery

6574 7584 85+Median $800 $500 $1,430 $300 $500 $501 $500 $5,000 $216 $300 $501 $701 $10,001 $218 $305Mean $2,099 $1,285 $8,902 $657 $940 $1,754 $2,310 $16,948 $543 $910 $2,694 $4,693 $24,185 $3,008 $82490th Percentile $5,000 $3,500 $31,500 $1,500 $2,001 $5,000 $5,001 $50,001 $1,001 $2,000 $10,001 $19,001 $66,600 $5,001 $2,000

$-

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

Figure 3Non-Recurring Health Care Expenses in the Two-Year Period (20102012), by Age Group

Source: Employee Benefit Research Institute estimates from Employee Benefit Research Institute (HRS), 2012.


OvernightNursing-

Home Stay

Living in aNursing

Home at thetime of Death

Home HealthCare

OutpatientSurgery

OtherServices Dentist

PrescriptionDrugs Doctor Visits

6574 70.7% 31.1% 23.0% 51.7% 18.6% 25.9% 28.6% 93.6% 90.8%7584 69.9% 48.0% 34.7% 50.1% 10.2% 29.3% 31.8% 95.7% 94.3%85+ 63.8% 62.3% 51.6% 52.2% 10.0% 35.5% 38.0% 94.3% 92.7%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Figure 4Utilization of Different Health Care Services Among

Those Who Died During the Two-Year Period (20102012)

Source: Employee Benefit Research Institute estimates from the Health and Retirement Study (HRS), 2012.


DentistVisits

DoctorVisits

PrescriptionDrugs

DentistVisits

DoctorVisits

PrescriptionDrugs

DentistVisits

DoctorVisits

PrescriptionDrugs

6574 7584 85+Median $401 $551 $100 $400 $501 $75 $500 $501 $60Mean $1,074 $1,706 $183 $904 $1,906 $111 $1,137 $1,435 $11390th Percentile $3,000 $5,001 $300 $2,500 $5,001 $300 $2,300 $5,001 $250

$-

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

Figure 5Recurring Health Care Expenses For Those

Who Died During the Two-Year Period 20102012*

Source: Employee Benefit Research Institute estimates from Health and Retirement Study (HRS), 2012.*Prescriptiondrug expensesaremonthly.

Hospital In-HomeCareNursingHome

OtherCare


In-HomeCare

NursingHome

OtherCare


In-HomeCare

NursingHome

OtherCare

OutpatientSurgery

6574 7584 85+Median $1,000 $651 $3,600 $245 $836 $1,198 $1,750 $3,000 $475 $851 $1,200 $1,000 $5,001 $400 $400Mean $4,590 $974 $7,755 $390 $2,004 $4,109 $4,364 $15,875 $1,381 $1,950 $3,344 $5,168 $18,110 $651 $87590th Percentile $10,001 $2,000 $30,000 $1,001 $5,000 $10,001 $12,000 $50,001 $4,751 $5,001 $10,001 $10,000 $50,001 $2,000 $5,001

$-

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

Figure 6Non-Recurring Health Care Expenses For Those Who Died During the Two-Year Period 20102012

Source: Employee Benefit Research Institute estimates from Health and Retirement Study (HRS),2012.


OvernightHospital

Stay

OvernightNursing-

Home Stay

Living atNursingHome atInterview

HomeHealthCare

OutpatientSurgery


DoctorVisits

PrescriptionDrugs

Bottom Quartile 30.5% 5.2% 2.5% 11.6% 18.1% 14.9% 43.5% 88.0% 89.3%2nd Quartile 28.6% 4.2% 0.9% 8.8% 19.8% 14.7% 56.6% 92.1% 87.6%3rd Quartile 24.9% 2.1% 0.2% 7.0% 22.9% 13.7% 70.2% 95.4% 89.5%Top Quartile 23.5% 1.5% 0.2% 5.8% 22.7% 16.8% 80.1% 95.5% 86.4%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Figure 7Utilization of Different Health Care Services in the Two-Year

Period (20102012), by Income Quartile for Those Ages 6574


OvernightHospital

Stay

OvernightNursing-

Home Stay

Living atNursingHome atInterview

HomeHealth Care

OutpatientSurgery


DoctorVisits

PrescriptionDrugs


0%

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100%

Figure 8Utilization of Different Health Care Services the Two-Year





Differences in Health Care Expenses: Figures 10 and 11 show the average recurring and non-recurring health care costs respectively for age group I. Since the difference between different income groups is at focus here, and not the range of these costs, only averages (mean) are shown. Figure 10 shows that conditional on usage, the out-of-pocket costs for recurring health care services do not have any pattern with respect to income. The average expenses for three different services are similar for different income groups. The same is generally true for non-recurring services in Figure 11, but there is one difference. The top income quartile spent more than others for most non-recurring services, especially for nursing-home stays and home health care. For example, the people in the third income quartile spent on average $1,030 for home health care compared to $2,036 for the top income quartile. One possible reason behind this trend is Medicaid. Lower-income households are more likely to be covered by Medicaid for services like nursing-home care and home health care, which reduces their out-of-pocket expenses. Also, higher income households could pay more if they choose better quality of care.

Figures 12 and 13 show the average recurring and non-recurring health care expenses for age group II. Figure 12 shows that the average expense for doctor visits actually go down as income rises, except for the top income quartile, which had slightly higher expenses ($644) than the third income quartile ($591) but still much less than the bottom income quartile ($936). For dentist services, there was an opposite (upward) trend. But prescription drug expenses were similar across different income groups. In terms of non-recurring health care expenses, the trend of the top income quartile spending more on nursing-home stays and home health care became more pronounced for this age group. The average nursing-home and home health care expenses were $16,595 and $1,642 for the third income quartile, and increased to $28,133 and $4,695 respectively for the top income quartile.

Finally, Figures 14 and 15 show the recurring and non-recurring health care expenses for age group III, people ages 85 and above. There are some discernible income patterns for this group, at least for two of the recurring health care servicesdentist visits and prescription drugs. For dentist visits the average two-year expense went up from $632 for the bottom income quartile to $1,352 for the top income quartile. For prescription drugs, the respective increase was from $1,486 to $2,327. In terms of average nursing-home expenses, the top quartile still spent much more ($32,091) than the rest. But the differences in home health care expenses were reversed for this age group. The bottom income quartile actually spent more ($5,810) than the top income quartile ($5,359).

Differences between Men and Women Figure 16 shows the utilization rates of different health care services by men and women in the three age groups. These comparisons are also based on the surviving sample only. For age group I, except for overnight hospital stays, women utilize the other types of services at equal or higher rates, but the differences are small. For age group II, men and women have nearly identical utilization of recurring services. Among non-recurring services, men had more overnight hospital stays and outpatient surgeries. Again, the differences were small. For those ages 85 and above, women had higher nursing-home utilization rates. At the time of the interview, 26.9 percent of women compared to 17.1 percent of men had an overnight nursing-home stay and 19.2 percent of women were living at a nursing home compared to 8.5 percent of men. This is a large difference. Past research (Li, 2010) suggests that married men are significantly more likely than married women of the same age to have shorter nursing-home stays. So, marriage could be a factor affecting the nursing-home-entry rates as well.

Figures 17 and 18 show the average recurring and non-recurring health care expenses respectively for men and women. The differences in recurring expenses are very small. But, there are some differences in non-recurring expenses. First, nursing-home expenses: average nursing-home expenses are higher for men ($13,012) in age group I (compared to $6,383 for women); higher for women in age group II, $21,262 compared to $10,478 for men; and very similar for age group III, $24,525 and $24,089 for men and women respectively. Women in the two older groups also have higher home health care costs. And for the group 85 and above, women spend significantly more ($3,817) on other care compared to men ($1,440).


OvernightNursing-

Home Stay

Living atNursngHome atInterview

Home HealthCare

OutpatientSurgery

SpecialFacility Dentist Doctor Visits

PrescriptionDrugs


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Figure 9Utilization of Different Health Care Services in the Two-Year

Period (20102012), by Income Quartile for Those Ages 85 and Older


Doctor Visits Dentist Prescription DrugsBottom Quartile $871 $1,083 $1,8082nd Quartile $658 $923 $1,9813rd Quartile $714 $1,211 $1,991Top Quartile $774 $1,211 $1,679

$-

$500

$1,000

$1,500

$2,000

$2,500

Figure 10Average Recurring Health Care Expenses in the Two-Year




Overnight HospitalStay

Overnight Nursing-Home Stay Outpatient Surgery Home Health Care Other Care

Bottom Quartile $2,205 $8,329 $770 $1,143 $8572nd Quartile $1,684 $9,010 $813 $974 $4893rd Quartile $2,238 $7,958 $1,010 $1,030 $589Top Quartile $2,406 $11,034 $1,102 $2,036 $693

$-

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

Figure 11Average Non-Recurring Health Care Expenses in the Two-Year Period (20102012), by Income Quartile for Those Ages 6574


Doctor Visits Dentist Prescription DrugBottom Quartile $936 $1,100 $1,7512nd Quartile $735 $1,040 $1,9483rd Quartile $591 $1,155 $1,809Top Quartile $644 $1,336 $1,764

$-

$500

$1,000

$1,500

$2,000

$2,500






Conclusion This study examines the utilization patterns and out-of-pocket expenses for different types of health care services. Using utilization patterns, nature of the service and expenses across different age groups, the different health care services are divided into recurring and non-recurring services. This is done to separate out the predictable part of health care expenses in retirement from the unpredictable part. Also, utilization patterns and expenses are separately studied for the period preceding death to examine the extent of back-loading in health care expenses. The study also shows the difference in utilization and expenses across different income groups and gender. The important findings from the study are as follows:

Based on utilization patterns and expenses, doctor visits, dentist visits and usage of prescription drugs arecategorized as recurring health care services. Overnight hospital stays, overnight nursing-home stays,outpatient surgery, home health care and usage of special facilities are categorized as non-recurring health careservices.

Recurring health care costs remain stable throughout retirement. The average annual expenditure for recurringhealth care expenses among the Medicare eligible population was $1,885. Assuming a 2 percent rate of inflationand 3 percent rate of return, a person with a life expectancy of 90 would require $40,798 at age 65 to fund hisor her recurring health care expenses. This does not include expenses for any insurance premiums or over-the-counter medications.

Usage and expenses of non-recurring health care services go up with age.

Nursing-home stays in particular can be very expensive. For people ages 85 and above, the average and the90th percentile of nursing-home expenses were $24,185 and $66,600 respectively during a two year period.

Nursing-home stays, home health care and overnight hospital stays are much higher in the period precedingdeath. More than 50 percent in every age group above 65 received in-home health care from a medicallytrained person before death. For those 85 and above, 62.3 percent had overnight nursing-home stays beforedeath and 51.6 percent were living in a nursing home prior to death.

Recurring and some of the non-recurring expenses were also much higher before death.

Usage of recurring health care services generally goes up with income and usage of non-recurring health careservicesexcept usage of outpatient surgery and special facilitiesgoes down with income.

The top income quartile spent significantly more on nursing-home and home health care expenses than therest.

Women above 85 have significantly higher nursing-home usage than men. The rest of the differences betweenmen and women are small.



Bottom Quartile $2,047 $10,904 $800 $923 $3332nd Quartile $2,078 $15,523 $1,405 $1,680 $3433rd Quartile $1,221 $16,595 $678 $1,642 $421Top Quartile $1,774 $28,133 $818 $4,695 $860

$-

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

Figure 13Average Non-Recurring Health Care Expenses in the Two-Year Period (20102012), by Income Quartile for Those Ages 7584


Doctor Visits Dentist Prescription DrugsBottom Quartile $1,155 $632 $1,4862nd Quartile $841 $919 $1,6733rd Quartile $817 $927 $2,040Top Quartile $914 $1,352 $2,327

$-

$500

$1,000

$1,500

$2,000

$2,500


Period (20102012), by Income Quartile for Those 85 and Older





Bottom Quartile $3,415 $17,806 $695 $5,810 $4,9422nd Quartile $2,490 $25,960 $992 $4,235 $5,4543rd Quartile $2,983 $20,269 $891 $3,382 $1,669Top Quartile $1,868 $32,091 $677 $5,359 $607

$-

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

Figure 15Average Non-Recurring Health Care Expenses in the Two-Year Period (20102012), by Income Quartile for Those 85 and Older


Female Male Female Male Female Male6574 7584 85+

Overnight Hospital Stay 26.1% 27.9% 33.3% 35.0% 43.6% 40.4%Overnight Nursing-Home Stay 3.8% 2.5% 8.7% 7.8% 26.9% 17.1%Living in a Nursing Home at Interview 1.0% 0.8% 4.0% 2.9% 19.2% 8.5%Home Health Care 9.0% 7.4% 14.2% 11.9% 28.6% 22.0%Outpatient Surgery 20.9% 20.9% 20.2% 23.8% 14.7% 18.9%Special Facility 16.7% 12.7% 20.3% 15.3% 29.0% 23.0%Dentist 64.8% 59.6% 58.3% 58.3% 53.7% 57.8%Doctor Visits 93.5% 91.8% 93.5% 93.0% 92.9% 94.1%Prescription Drugs 89.0% 87.2% 92.3% 92.4% 95.0% 92.2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Figure 16Utilization of Different Health Care Services in the

Two-Year Period (20102012), by Age Group and Gender

Source: Employee Benefit Research Institute estimates from Health and Retirement Study (HRS).



Doctor Visits $753 $745 $705 $713 $893 $949Dentist $1,088 $1,180 $1,117 $1,269 $916 $1,198Prescription Drugs $1,855 $1,884 $1,763 $1,895 $1,922 $1,912

$-

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

Figure 17Average Recurring Health Care Expenses in the

Two-Year Period (20102012), by Age Group and Gender



Hospital $2,161 $2,025 $1,889 $1,592 $2,567 $2,900Nursing Home $6,383 $13,012 $21,262 $10,478 $24,089 $24,525Outpatient Surgery $1,010 $855 $1,024 $778 $1,018 $659In-Home Care $1,447 $1,055 $3,415 $1,136 $5,229 $3,831Other Care $600 $757 $508 $608 $3,817 $1,440

$-

$5,000

$10,000

$15,000

$20,000

$25,000

Figure 18Non-Recurring Health Care Expenses in the Two-Year

Period (20102012), by Age Group and Gender




References Adler, N. E., T. Boyce, M.A. Chesney, S. Cohen, S. Folkman, R.L. Kahn, and S.L. Syme. Socioeconomic Status and

Health, the Challenge of the Gradient, American Psychologist, 49(1): 15-24, 1994.

Banerjee, Sudipto. Expenditure Patterns of Older Americans, 20012009, EBRI Issue Brief, no. 368, (Employee Benefit Research Institute, February 2012).

. How Does Household Expenditure Change With Age for Older Americans? EBRI Notes, Vol. 35, no. 9, (Employee Benefit Research Institute, September 2014).

Banks, J., M. Marmot, Z. Oldfield, and J.P. Smith. The SES Health Gradient on Both Sides of the Atlantic, In D.A. Wise, ed., Developments in the Economics of Aging. Chicago: University of Chicago Press, 2009.

Fidelity Benefits Consulting. Retiree Health Costs Hold Steady, Fidelity Viewpoints, June 11, 2014.

Fronstin, Paul, Dallas Salisbury, and Jack VanDerhei. Amount of Savings Needed for Health Expenses for People Eligible for Medicare: Good News Not So Rare Anymore, EBRI Notes, Vol. 35, no. 10, (Employee Benefit Research Institute, October 2014)

Li, I-Hsin. Gender Differences in Nursing Home Durations Among the Elderly: A Backward Recurrence Time Approach, Working Paper, Department of Economics, Indiana University, 2010.

Endnotes

1 At the baseline, HRS includes panel members only from the non-institutionalized population and hence it is not representative of the entire elderly population. By the third wave after entry, the sample is representative of the population (Hurd, Michaud and Rohwedder, 2013). So, those with at least three interviews are included in the sample.

2 Derived by dividing the average expenses in Figure 2 by 24.

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