Medical Expenditure Burdens: The Impact Medical Expenditure Burdens: The Impact of Tax Subsidies, Within-Year Expenditure of Tax Subsidies, Within-Year Expenditure

Concentration, and MoreConcentration, and More

Thomas M. Selden, Ph.D.Thomas M. Selden, Ph.D.Division of Modeling & SimulationDivision of Modeling & Simulation

Center for Financing, Access and Cost TrendsCenter for Financing, Access and Cost Trends

What is a “High Burden”?What is a “High Burden”?

Out-of-pocket expendituresOut-of-pocket expenditures

------------------------------------- > threshold (e.g., 20%)------------------------------------- > threshold (e.g., 20%)

Resources (income)Resources (income)

Various terminology:Various terminology:– ““Catastrophic expenditures”Catastrophic expenditures”– ““High expenditure cases”High expenditure cases”– ““High expenditures relative to income”High expenditures relative to income”– ““High burdens”High burdens”

Why Study Burdens?Why Study Burdens?

Most families healthy in given yearMost families healthy in given year Illness, however, is a fact of lifeIllness, however, is a fact of life Medical bills pour in just when families Medical bills pour in just when families

must grapple with illness, seeking care, must grapple with illness, seeking care, and possibility reduced earningsand possibility reduced earnings

Accurate burden measurement a key Accurate burden measurement a key ingredient for sound public policyingredient for sound public policy

Overview of TalkOverview of Talk

DataData 2 refinements to conventional results2 refinements to conventional results

– Impact of tax subsidiesImpact of tax subsidies– Intra-year burdensIntra-year burdens– Neither previously studiedNeither previously studied– Burden of uncompensated care (time Burden of uncompensated care (time

permitting)permitting)

DataData

Medical Expenditure Panel SurveyMedical Expenditure Panel Survey– Sponsored by AHRQ & NCHSSponsored by AHRQ & NCHS– ≈ ≈ 30K persons each year30K persons each year– Civilian Civilian noninstitutionalizednoninstitutionalized population population

““Narrow” family definitionNarrow” family definition <65 population<65 population

– MCR Part D likely to affect senior burdensMCR Part D likely to affect senior burdens Simulated tax subsidiesSimulated tax subsidies Edited event and job dataEdited event and job data

Conventional Results: 10% and 20% Burden Conventional Results: 10% and 20% Burden Frequency (OOPFrequency (OOPMEDMED+OOP+OOPPREMPREM) by Poverty Level, ) by Poverty Level,

02&0302&03

0

5

10

15

20

25

30

35

40

% o

f P

op

10 Percent

20 Percent

Impact of Tax SubsidyImpact of Tax Subsidy

Tax SubsidiesTax Subsidies

Itemized deduction for out-of-pocket spendingItemized deduction for out-of-pocket spending ESI premiums excluded from federal income, ESI premiums excluded from federal income,

federal payroll, and state income taxesfederal payroll, and state income taxes Retiree ESI coverage exemptionRetiree ESI coverage exemption Sales tax exemptionSales tax exemption Self-employment premium deduction from Self-employment premium deduction from

federal and most state income taxesfederal and most state income taxes

Tax SubsidiesTax Subsidies

Tax subsidies total 16.3% of all spending on Tax subsidies total 16.3% of all spending on health care (across all ages)health care (across all ages)

Nearly Nearly TWICETWICE this share of private spending this share of private spending Ignoring subsidies leads to overstated Ignoring subsidies leads to overstated

burdensburdens– How large is effect?How large is effect?– Whose burdens are reduced?Whose burdens are reduced?

Family Tax Subsidies on OOPFamily Tax Subsidies on OOPMEDMED and and OOPOOPPREMPREM, by Poverty Level, 02&03, by Poverty Level, 02&03

0100200300400500600700800900

1000

20

02

Do

llars

All<100

100-199

200-399

400+

0

5

10

15

20

25

Su

bs

idy

Ra

te

All<100

100-199

200-399

400+

Subsidy RateAverage Subsidy

Impact of Tax Subsidy on 20% Burden Frequency Impact of Tax Subsidy on 20% Burden Frequency (OOP(OOPMEDMED+OOP+OOPPREMPREM) by Poverty Level, 2002&2003) by Poverty Level, 2002&2003

0

5

10

15

20

25

30

35

% o

f P

op

Pre-Subsidy

Post-Subsidy

Impact of Tax Subsidy on OOPImpact of Tax Subsidy on OOPMEDMED+OOP+OOPPREMPREM Burdens > 20%, by Poverty Level, 02&03Burdens > 20%, by Poverty Level, 02&03

0

2

4

6

8

10

12

Bu

rde

n R

ed

uc

tio

n (

%)

Bias from Ignoring SubsidiesBias from Ignoring Subsidies

Conventional studies ignore subsidiesConventional studies ignore subsidies But reported spending is But reported spending is de factode facto net of net of

sales taxes that would have been paid sales taxes that would have been paid absent the exemptionabsent the exemption

Thus, conventional measures are Thus, conventional measures are between pre-subsidy and post-subsidy between pre-subsidy and post-subsidy measuresmeasures

Can one “safely” ignore subsidies?Can one “safely” ignore subsidies?

Conventional* vs. Subsidy-Adjusted 20% Burden Conventional* vs. Subsidy-Adjusted 20% Burden Frequency (OOPFrequency (OOPMEDMED+OOP+OOPPREMPREM) by Poverty, 02&03) by Poverty, 02&03

0

5

10

15

20

25

30

% o

f P

op

Pre-Subsidy

Conventional

Post-Subsidy

*I.e., based on published MEPS data

Expanding Burden Definition to Include Wage Expanding Burden Definition to Include Wage Offset from Employer Contributions: Family Tax Offset from Employer Contributions: Family Tax

Subsidies, by Poverty, 02&03Subsidies, by Poverty, 02&03

0

500

1000

1500

2000

2500

3000

20

02

Do

llars

All<100

100-199

200-399

400+

0

5

10

15

20

25

30

35

Su

bs

idy

Ra

te

All<100

100-199

200-399

400+

Subsidy RateAverage Subsidy

Expanding Burden Defn to Include Wage Offset from Expanding Burden Defn to Include Wage Offset from Employer Contributions: Impact of Tax Subsidy on 20% Employer Contributions: Impact of Tax Subsidy on 20%

Burden Frequency, by Poverty, 02&03Burden Frequency, by Poverty, 02&03

05

101520253035404550

% o

f P

op

.

Pre-Subsidy

Post-Subsidy

Expanding Burden Defn to Include Wage Offset from Expanding Burden Defn to Include Wage Offset from Employer Contributions: Impact of Tax Subsidy on Burdens Employer Contributions: Impact of Tax Subsidy on Burdens

> 20%, by Poverty Level, 02&03> 20%, by Poverty Level, 02&03

0

2

4

6

8

10

12

Bu

rde

n R

ed

uc

tio

n (

%)

SummarySummary

Tax subsidies modestly reduce out-of-pocket burdensTax subsidies modestly reduce out-of-pocket burdens Larger impact on burdens inclusive of cash wage Larger impact on burdens inclusive of cash wage

offsets for employer contributionsoffsets for employer contributions Little benefit for poorLittle benefit for poor Middle income groups benefit moreMiddle income groups benefit more Conventional OOP burden estimates that ignore Conventional OOP burden estimates that ignore

subsidies are fairly accuratesubsidies are fairly accurate– OOP spending measured net of sales tax exemption (hence OOP spending measured net of sales tax exemption (hence

conventional measures already post-subsidy to a degree)conventional measures already post-subsidy to a degree)

Do Annual 20% Burdens Tell the Whole Do Annual 20% Burdens Tell the Whole Story? The Impact of Within-Year Story? The Impact of Within-Year

Expenditure ConcentrationExpenditure Concentration

20% Burden Frequency vs. Self-Reported 20% Burden Frequency vs. Self-Reported “Bill Problems”“Bill Problems”

0

10

20

30

40

50

% o

f P

op

ula

tio

n

.

MEPS CommonwealthFund

20% Burden "Bill Problems"

Adults Age 19-64 in 2004Adults Age 19-64 in 2004

7.7%

28%

““Bill Problem” Responses Might Reflect Bill Problem” Responses Might Reflect Lower Thresholds, Adults 2004Lower Thresholds, Adults 2004

0

5

10

15

20

25

30

35

40

45

50

% o

f P

op

.

MEPS

>40%>20%>10%>5/10%>5%

"Bill Problem"

CMWF

Within-Year Burdens?Within-Year Burdens?

Precautionary savings are lowPrecautionary savings are low– 24% of bottom quintile have 24% of bottom quintile have nono liquid assets liquid assets– Median among those with assets=$600Median among those with assets=$600

Expenditures Expenditures HIGHLYHIGHLY concentrated within year concentrated within year

Earnings dip when expenditures spike?Earnings dip when expenditures spike?

Within-Year Family Expenditure Within-Year Family Expenditure Concentration, 2003&2004Concentration, 2003&2004

0

10

20

30

40

50

% o

f A

nn

ual

To

tal

1 2 3 4 5 6 7 8 9 10 11 12

Ranked Months

Out-of-Pocket Total

Note: Families with zero expenditures excluded

Peak Month as Percentage of Annual Peak Month as Percentage of Annual Total, by Poverty and ExpenditureTotal, by Poverty and Expenditure

010203040506070

% o

f T

ota

l

<1K1K-5K

5K-10K

>10K

Total Expenditure

Total Out-of-Pocket

010203040506070

% o

f T

ota

l

Poverty Level

Out-of-Pocket Total

Quarterly vs Monthly ConcentrationQuarterly vs Monthly Concentration

Peak out-of-pocket month: 44.5%Peak out-of-pocket month: 44.5% Peak out-of-pocket quarter: 60.5%Peak out-of-pocket quarter: 60.5%

– For poor: 76.2% of OOP occurs in a single For poor: 76.2% of OOP occurs in a single quarterquarter

Does Income Fall as Medical Expenditures Does Income Fall as Medical Expenditures Peak?Peak?

Among poor families:Among poor families:

P(P(ΔΔY < -.333)Y < -.333) in peak month in peak month = 23.6%= 23.6%P(P(ΔΔY > .333)Y > .333) in peak month in peak month = 10.7%= 10.7%

P(P(ΔΔY < -.333)Y < -.333) in low month in low month= 16.6%= 16.6%P(P(ΔΔY > .333)Y > .333) in low month in low month = 15.6%= 15.6%

Diff-in-Diff Diff-in-Diff = 12.1% (p<.1)= 12.1% (p<.1)

Calculated for families with $1000 in earnings and $5000 in medical

expenditures – half of which occurred in single month

Does Income Fall as Medical Expenditures Does Income Fall as Medical Expenditures Peak?Peak?

Among poor families:Among poor families:

P(P(ΔΔY < -.333)Y < -.333) in peak quarter in peak quarter = 19.7%= 19.7%P(P(ΔΔY > .333)Y > .333) in peak quarter in peak quarter = 9.6%= 9.6%

P(P(ΔΔY < -.333)Y < -.333) in low quarter in low quarter = 11.5%= 11.5%P(P(ΔΔY > .333)Y > .333) in low quarter in low quarter = 17.5%= 17.5%

Diff-in-Diff Diff-in-Diff = 16.1% (p<.05)= 16.1% (p<.05)

Calculated for families with $1000 in earnings and $5000 in medical

expenditures – half of which occurred in single month

20% Burdens among Nonelderly20% Burdens among Nonelderlyby Poverty Level, 03&04by Poverty Level, 03&04

0

10

20

30

40

50

All <100 100-199

200-399

400+

Poverty Level

% o

f P

op

ula

tio

n

AnnualQuarterlyMonthly

6.9

16.7

27.0

34.6

43.6

1.1

21.5

Spending Distribution in High-Spending Distribution in High-Burden Month by Poverty, 03&04Burden Month by Poverty, 03&04

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

ALL<100

100-199

200-399

400+

HOSPDENTRXAMB&OTHPREMIUM

*Conditional on having 20% monthly burden

20% Burdens by Family 20% Burdens by Family Coverage, 03&04Coverage, 03&04

0

10

20

30

40

AllAll Priv

All MCD/SCHIP

All Unin

% o

f P

op

ula

tio

n

Annual Quarterly Monthly

Spending in High-Burden Month Spending in High-Burden Month by Family Coverage, 03&04by Family Coverage, 03&04

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

ALLPRIV

M/S

UNIN

DENTHOSPRXAMB&OTHPREMIUM

*Conditional on having 20% monthly burden

Within-Year Burden ConclusionsWithin-Year Burden Conclusions

>40% poor have high monthly burden >40% poor have high monthly burden Income dips play small roleIncome dips play small role

– Monthly burden rate for poor: 41.3% vs 43.6%Monthly burden rate for poor: 41.3% vs 43.6%– Spikes in expenditures more importantSpikes in expenditures more important

RX plays key role for poor and families with RX plays key role for poor and families with public coveragepublic coverage

Monthly measure for adults in 2003 only Monthly measure for adults in 2003 only slightly less than “bill problem” frequency slightly less than “bill problem” frequency (26.9% vs. 28%)(26.9% vs. 28%)

Burden of Uncompensated CareBurden of Uncompensated Care

Uncompensated CareUncompensated Care

CWF “bill problem” includes inability to payCWF “bill problem” includes inability to pay UC can indeed be burdensomeUC can indeed be burdensome

– Medical debtMedical debt– Credit problemsCredit problems– Access problemsAccess problems– StigmaStigma– All ignored by conventional burden analysesAll ignored by conventional burden analyses

Not observed, but…Not observed, but…– WTPWTP(avoid UC burden) < UC(avoid UC burden) < UC

Bounding 20% Annual Burdens Bounding 20% Annual Burdens for Uncompensated Carefor Uncompensated Care

0

5

10

15

20

25

30

ALL<100

100-200

200-300

300-400

400-600

>600

% o

f P

op

ula

tio

n

Upper BoundLower Bound

Monthly Burdens (20%)Monthly Burdens (20%)

0

10

20

30

40

50

60

ALL<100

100-200

200-300

300-400

400-600

>600

% o

f P

op

ula

tio

n

Upper BoundLower Bound

UC ConclusionsUC Conclusions

Modest increase in prevalenceModest increase in prevalence Concentrated among poor and pub/uninConcentrated among poor and pub/unin Families “pay until it hurts”Families “pay until it hurts” Importance of measuring medical debtImportance of measuring medical debt Monthly UC-adjusted burdens Monthly UC-adjusted burdens

approximately same as “bill problem” approximately same as “bill problem” frequencyfrequency

ConclusionsConclusions

Tax subsidies modestly reduce burdensTax subsidies modestly reduce burdens– Little goes to poorLittle goes to poor

Narrowing “budget window” from annual to Narrowing “budget window” from annual to quarter/month greatly increases burden quarter/month greatly increases burden prevalence, especially among poorprevalence, especially among poor

Conventional measures relatively robust to Conventional measures relatively robust to inclusion/exclusion of uncompensated careinclusion/exclusion of uncompensated care

More detailed analysis may help solve More detailed analysis may help solve discrepancy between burden vs bill problem discrepancy between burden vs bill problem frequenciesfrequencies