Out-of-Pocket Health Care Expenditure Patterns and Financial Burden across the Life Cycle Stages

This study examines out-of-pocket health care expenditure patterns of households and the financial burden of health care costs over the stages of the household life cycle, using the 1995 Consumer Expenditure Survey. The elderly households not only spend more for health care, but they also experience higher financial burdens than other households. Insurance status, liquid assets, life cycle stage, household size, education, and self-employment status are significant factors affecting the household budge share of health care expenses. As the nation's health care expenditures increase, the total out-of-pocket expenses paid by families and households also have increased in recent years (Levit, Cowan, Braden, Stiller, Sensenig, and Lazenby 1998), and the shares of health care spending by government and employers also have increased (Aaron 1994; Acs and Sabelhaus 1995; Huskamp and Newhouse 1994; Levit, Freeland, and Waldo 1990). As their expense for health care increases, the government, employers, and insurers are trying to shift their growing portion of the cost to families and households by increasing co-payments, deductibles, and premiums. In addition, employers are discontinuing certain previously covered services to reduce their costs, which shifts the burden to families and households (Levit et al. 1998; Paulin and Weber 1995; Rubin and Koelln 1993). The rising out-of-pocket health care expenditures reflect changes in the health care market. While the debate about how to finance the nation's health care system continues, a new era of controlling the costs of health care has emerged in the health care market. The term managed care replaces the term health maintenance organization (HMO). Traditional HMOs were established as consumer-oriented models of comprehensive health services provided to members in exchange for a fixed monthly or yearly premium. However, the new managed care models attempt to contain costs by obtaining discounts from providers, by denying approval for health care or for payments, and by selectively enrolling healthier people. As a result, a portion of the health care cost is shifted to the insured in the form of higher premiums, co-payments, and deductibles (Mizrahi 1993; Remler and Blendon 1997). With the current emphasis on managed care and the trend toward cost-sharing and cost-shifting, it is inevitable that a greater proportion of health care costs will be borne by families and households. The Health Care Financing Administration (1999) projects an average annual increase in out-of-pocket health care spending of 6 percent until the year 2007. Vulnerable groups, such as the elderly, the uninsured, the underinsured, and those with chronic illnesses, are more likely to be affected by the increased costs due to their limited financial resources, lack of health insurance, and greater need for health care. Those with illnesses that need immediate medical attention may be forced to postpone medical treatment or remain untreated until the conditions worsen to get emergency care, which is more costly. When emergency care is sought, they will be financially burdened by the high cost of emergency care and may have difficulty making payments. The unpaid portion of payments eventually will be shifted to the p rivately insured by means of various payments they make for health care, including health insurance premiums, physician visits, and prescription drugs. Vulnerable groups may have to reduce purchases of nonmedical goods and services to afford their necessary health care (Paulin and Weber 1995). The reduced consumption of nonmedical goods and services will lower the quality of life for these individuals and households that are financially burdened by high health care costs. The impact can be serious for those with multiple medical conditions. While health care reform remains an important consumer issue and the U.S. health policies continue to focus on accessibility and affordability of health care, it is crucial to understand the patterns of out-of-pocket expenses and financial burdens experienced by households, especially across their life cycle stages. …