Medical Expenditure Burdens: The Impact of Tax Subsidies, Within-Year Expenditure Concentration, and More Thomas M. Selden, Ph.D. Division of Modeling & Simulation Center for Financing, Access and Cost Trends

What is a “High Burden”? Out-of-pocket expenditures Out-of-pocket expenditures > threshold (e.g., 20%) > threshold (e.g., 20%) Resources (income) Resources (income) Various terminology: Various terminology: – “Catastrophic expenditures” – “High expenditure cases” – “High expenditures relative to income” – “High burdens”

Why Study Burdens? Most families healthy in given year Most families healthy in given year Illness, however, is a fact of life Illness, however, is a fact of life Medical bills pour in just when families must grapple with illness, seeking care, and possibility reduced earnings Medical bills pour in just when families must grapple with illness, seeking care, and possibility reduced earnings Accurate burden measurement a key ingredient for sound public policy Accurate burden measurement a key ingredient for sound public policy

Overview of Talk Data Data 2 refinements to conventional results 2 refinements to conventional results – Impact of tax subsidies – Intra-year burdens – Neither previously studied – Burden of uncompensated care (time permitting)

Data Medical Expenditure Panel Survey Medical Expenditure Panel Survey – Sponsored by AHRQ & NCHS – ≈ 30K persons each year – Civilian noninstitutionalized population “Narrow” family definition “Narrow” family definition <65 population <65 population – MCR Part D likely to affect senior burdens Simulated tax subsidies Simulated tax subsidies Edited event and job data Edited event and job data

Conventional Results: 10% and 20% Burden Frequency (OOP MED +OOP PREM ) by Poverty Level, 02&03

Impact of Tax Subsidy

Tax Subsidies Itemized deduction for out-of-pocket spending Itemized deduction for out-of-pocket spending ESI premiums excluded from federal income, federal payroll, and state income taxes ESI premiums excluded from federal income, federal payroll, and state income taxes Retiree ESI coverage exemption Retiree ESI coverage exemption Sales tax exemption Sales tax exemption Self-employment premium deduction from federal and most state income taxes Self-employment premium deduction from federal and most state income taxes

Tax Subsidies Tax subsidies total 16.3% of all spending on health care (across all ages) Tax subsidies total 16.3% of all spending on health care (across all ages) Nearly TWICE this share of private spending Nearly TWICE this share of private spending Ignoring subsidies leads to overstated burdens Ignoring subsidies leads to overstated burdens – How large is effect? – Whose burdens are reduced?

Family Tax Subsidies on OOP MED and OOP PREM, by Poverty Level, 02&03 Subsidy RateAverage Subsidy

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

Impact of Tax Subsidy on OOP MED +OOP PREM Burdens > 20%, by Poverty Level, 02&03

Bias from Ignoring Subsidies Conventional studies ignore subsidies Conventional studies ignore subsidies But reported spending is de facto net of sales taxes that would have been paid absent the exemption But reported spending is de facto net of sales taxes that would have been paid absent the exemption Thus, conventional measures are between pre-subsidy and post-subsidy measures Thus, conventional measures are between pre-subsidy and post-subsidy measures Can one “safely” ignore subsidies? Can one “safely” ignore subsidies?

Conventional* vs. Subsidy-Adjusted 20% Burden Frequency (OOP MED +OOP PREM ) by Poverty, 02&03 *I.e., based on published MEPS data

Expanding Burden Definition to Include Wage Offset from Employer Contributions: Family Tax Subsidies, by Poverty, 02&03 Subsidy RateAverage Subsidy

Expanding Burden Defn to Include Wage Offset from Employer Contributions: Impact of Tax Subsidy on 20% Burden Frequency, by Poverty, 02&03

Expanding Burden Defn to Include Wage Offset from Employer Contributions: Impact of Tax Subsidy on Burdens > 20%, by Poverty Level, 02&03

Summary Tax subsidies modestly reduce out-of-pocket burdens Tax subsidies modestly reduce out-of-pocket burdens Larger impact on burdens inclusive of cash wage offsets for employer contributions Larger impact on burdens inclusive of cash wage offsets for employer contributions Little benefit for poor Little benefit for poor Middle income groups benefit more Middle income groups benefit more Conventional OOP burden estimates that ignore subsidies are fairly accurate Conventional OOP burden estimates that ignore subsidies are fairly accurate – OOP spending measured net of sales tax exemption (hence conventional measures already post-subsidy to a degree)

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

20% Burden Frequency vs. Self-Reported “Bill Problems” Adults Age in % 28%

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

Within-Year Burdens? Precautionary savings are low Precautionary savings are low – 24% of bottom quintile have no liquid assets – Median among those with assets=$600 Expenditures HIGHLY concentrated within year Expenditures HIGHLY concentrated within year Earnings dip when expenditures spike? Earnings dip when expenditures spike?

Within-Year Family Expenditure Concentration, 2003&2004 Note: Families with zero expenditures excluded

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

Quarterly 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 quarter

Does Income Fall as Medical Expenditures Peak? Among poor families: Among poor families: P(ΔY < -.333) in peak month= 23.6% P(ΔY >.333) in peak month= 10.7% P(ΔY < -.333) in low month= 16.6% P(ΔY >.333) in low month = 15.6% Diff-in-Diff = 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 Peak? Among poor families: Among poor families: P(ΔY < -.333) in peak quarter= 19.7% P(ΔY >.333) in peak quarter= 9.6% P(ΔY < -.333) in low quarter= 11.5% P(ΔY >.333) in low quarter= 17.5% Diff-in-Diff = 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 Nonelderly by Poverty Level, 03&

Spending Distribution in High- Burden Month by Poverty, 03&04 *Conditional on having 20% monthly burden

20% Burdens by Family Coverage, 03&04

Spending in High-Burden Month by Family Coverage, 03&04 *Conditional on having 20% monthly burden

Within-Year Burden Conclusions >40% poor have high monthly burden >40% poor have high monthly burden Income dips play small role Income dips play small role – Monthly burden rate for poor: 41.3% vs 43.6% – Spikes in expenditures more important RX plays key role for poor and families with public coverage RX plays key role for poor and families with public coverage Monthly measure for adults in 2003 only slightly less than “bill problem” frequency (26.9% vs. 28%) Monthly measure for adults in 2003 only slightly less than “bill problem” frequency (26.9% vs. 28%)

Burden of Uncompensated Care

Uncompensated Care CWF “bill problem” includes inability to pay CWF “bill problem” includes inability to pay UC can indeed be burdensome UC can indeed be burdensome – Medical debt – Credit problems – Access problems – Stigma – All ignored by conventional burden analyses Not observed, but… Not observed, but… – WTP(avoid UC burden) < UC

Bounding 20% Annual Burdens for Uncompensated Care

Monthly Burdens (20%)

UC Conclusions Modest increase in prevalence Modest increase in prevalence Concentrated among poor and pub/unin Concentrated among poor and pub/unin Families “pay until it hurts” Families “pay until it hurts” Importance of measuring medical debt Importance of measuring medical debt Monthly UC-adjusted burdens approximately same as “bill problem” frequency Monthly UC-adjusted burdens approximately same as “bill problem” frequency

Conclusions Tax subsidies modestly reduce burdens Tax subsidies modestly reduce burdens – Little goes to poor Narrowing “budget window” from annual to quarter/month greatly increases burden prevalence, especially among poor Narrowing “budget window” from annual to quarter/month greatly increases burden prevalence, especially among poor Conventional measures relatively robust to inclusion/exclusion of uncompensated care Conventional measures relatively robust to inclusion/exclusion of uncompensated care More detailed analysis may help solve discrepancy between burden vs bill problem frequencies More detailed analysis may help solve discrepancy between burden vs bill problem frequencies