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Rising Out-Of-Pocket Spending For Chronic Conditions: A Ten-Year Trend
We examined the prevalence of self-reported chronic conditions and out-of-pocket spending using the 2005 Medical Expenditure Panel Survey (MEPS) and made comparisons to previously published MEPS data. Our study found that the prevalence of self-reported chronic conditions is increasing among not only the old-old but also people in midlife and earlier old age. The greatest growth occurred in the number of people affected by multiple chronic diseases, a group with sizable out-of-pocket spending. Policymakers should be aware that cost sharing at the point of care can disproportionately burden people with chronic conditions and discourage adherence to drugs that prevent disease progression.
PEOPLE LIVING WITH CHRONIC CONDITIONS are particularly vulnerable to rising out-of-pocket medical spending. Employer-sponsored insurance and Medicare health insurance premiums are generally shared across all policyholders; however, increased out-of-pocket spending at the point of care differentially burdens people with chronic conditions who require multiple services to maintain optimal health and treat disease. In recent years, employers have coped with the resurgence in medical inflation by increasing employees’ premium contributions and out-of-pocket obligations.1 Although the dollar amount spent by employees on health insurance premiums has increased, the employee contribution as a percentage of premium has fallen since the 1990s.2 The more dramatic increase in privately insured consumers’ spending in this decade is from out-of-pocket obligations such as multitier pharmacy plans, a shift from copayments to coinsurance, increased deductibles, combining deductibles with copayments, and smaller provider networks leading consumers to seek out-of-network care.3 Increasing out-of-pocket spending is intended to discourage unnecessary discretionary spending, but it may also reduce the use of clinically important services and drugs that prevent new onset and progression of chronic disease.4 Most research investigating the effects of increased cost sharing has focused on prescription drug use. Higher drug copayments and three-tier pharmacy plans have been found to reduce adherence to drugs for management of such chronic conditions as diabetes, hypercholesterolemia, hypertension, and schizophrenia.5 Reduced drug adherence includes delaying prescriptions fills, failing to fill prescriptions, cutting dosages, and reducing the frequency of administration. In an earlier paper by Wenke Hwang and colleagues, out-of-pocket medical spending by people diagnosed with chronic conditions was examined using data from the 1996 Medical Expenditure Panel Survey (MEPS).6 Results showed that out-of-pocket spending, particularly drug costs, increased with the number of chronic diseases and was substantial for both the elderly and the nonelderly. In this paper we present more recent data to reassess the impact of chronic conditions on out-of-pocket spending and to identify trends that should be considered by policymakers and other decisionmakers. Replicating the methodology developed in an earlier study enabled us to compare changes in chronic disease burden and out-of-pocket spending over a ten-year period.
Data. We used data from the 2005 MEPS, sponsored by the Agency for Healthcare Research and Quality (AHRQ). This nationally representative household survey collects detailed information on health status, health insurance coverage, and health care use and spending. An in-depth description of the survey methodology can be found elsewhere.7 Our analyses are weighted to represent the 292 million civilian noninstitutionalized U.S. population. Definition of "chronic conditions." Chronic conditions were defined as conditions that "had lasted or [were] expected to last twelve or more months and resulted in functional limitations and/or the need for ongoing medical care."8 A panel of physicians reviewed the three-digit International Classification of Diseases, Ninth Revision (ICD-9) codes and classified 111 codes as meeting the chronic condition definition in adults and 177 in children. AHRQ’s Clinical Classification System (CCS) was then used to determine the number of distinct chronic conditions per person.9 Multiple conditions that fell into the same CCS category were counted as one condition. People were designated as having 0, 1, 2, or 3 or more chronic conditions. Out-of-pocket spending. Out-of-pocket expenditures were self-reported payments for coinsurance, copayments, deductibles, and medically related items and services not covered by insurance. Health insurance premiums were not included, because the focus of this study was to measure the financial burden that is directly related to medical care use. People not using any medical services during the year were excluded from this segment of the study. Extreme data were capped at the 99.5 percentile to reduce the influence of outliers on mean out-of-pocket spending. Out-of-pocket spending indices were created to examine increases in spending that take into consideration changes in both reported disease prevalence and out-of-pocket spending over time. The 1996 mean expenditures taken from Hwang and colleagues’ out-of-pocket spending study were inflated to 2005 U.S. dollars based on the medical component of the Consumer Price Index (CPI).10 Average mean spending was weighted by disease prevalence for each year, and then ratios comparing 2005 spending with 1996 spending were calculated. Insurance and poverty status. Respondents were grouped into age categories and then further divided into mutually exclusive insurance categories.11 Each person needed to have more than six months of an insurance type to be assigned to the private insurance and Medicare insurance groups. The Medicaid coverage criterion was three months, because eligibility can vary from month to month. The classification of "uninsured" was applied only if no coverage was reported for the entire year. People under age sixty-five were categorized as having private, Medicaid, or "other public" insurance (Medicare, Tricare, or private and other public/physician programs), or uninsured. Those over age sixty-five were grouped as having Medicare only, both Medicare and private, or both Medicare and Medicaid. Poverty status was classified based on family income and the federal poverty level.12
Population with chronic conditions. In 2005, 43.8 percent of the U.S. civilian, noninstitutionalized population had one or more condition that we classified as chronic (Exhibit 1  ). One in five reported living with one chronic condition, while 10.7 percent of respondents reported two conditions, and 13.3 percent had three or more (multiple) conditions. Among adults, hypertension, hyperlipidemia, and diabetes mellitus without complications were the most prevalent conditions, accounting for 31.0 percent of all reported chronic conditions. Among those under age twenty, no conditions clearly predominated; upper respiratory disease, asthma, and attention deficit hyperactivity disorder (ADHD) were most common but together accounted for only 4.7 percent of all conditions.
The presence of chronic disease increased with age for the nonelderly population. The most dramatic rise occurred between early adulthood (ages 20–44) and midlife (ages 45–64): an increase from 32.4 percent to 63.1 percent of people with at least one chronic condition. After age sixty-four, people were most likely to be burdened by multiple chronic conditions (45.3 percent in younger-old age, ages 65–79; 54.2 percent in the old-old age group, age eighty and older) and least likely to report no chronic conditions. Dual eligibles (people with both Medicare and Medicaid) older than age sixty-four carried the most disease burden of all insurance groups: 52.7 percent reported having multiple chronic diseases. People under age sixty-five and uninsured tended to be healthier than all other groups; 21.7 percent of this group reported having a condition classified as chronic. When ethnicity and race were considered, non-Hispanics reported greater chronic condition burden than Hispanics (46.7 percent versus 26.8 percent). Whites reported having more chronic conditions than both blacks (46.5 percent versus 37.2 percent) and "other" races (34.1 percent). Women were more likely than men to report having a chronic condition, and, in particular, multiple conditions (15.8 percent versus 10.7 percent). The association of ethnicity, race, and sex with chronic conditions remained when age was controlled for in regression models (data not shown).
Out-of-pocket spending by individual characteristics.
Spending rose as the number of chronic conditions increased, with the largest increase occurring between zero and one condition (92 percent increase), and between two and multiple conditions (79 percent increase; Exhibit 2
Out-of-pocket spending by type of service. Drugs were the costliest type of medical expenditure for almost all groups (Exhibit 3 ). People over age sixty-five with multiple chronic conditions spent an annual average of $1,292 per person for drugs—more than any other group and more than five times greater than their spending for office visits. The new Medicare Part D drug benefit may mitigate the financial burden of drug costs for this group. Dental care followed drugs as the second most costly out-of-pocket health care expenditure but is less likely than other categories presented to be directly associated with chronic condition burden.
Comparisons between self-reported chronic disease prevalence in 1996 and 2005. Exhibit 4 presents the percentage-point increase in chronic condition prevalence from 1996 to 2005 by reported number of chronic conditions. An overall shift occurred from people reporting zero or only one chronic condition to people reporting multiple chronic conditions, particularly among people in midlife and older. Reports of multiple chronic conditions rose 9.7 percentage points among those in midlife; 17.6 percentage points among the younger-old; and 16.6 percentage points among the old-old. A dramatic upward shift toward people reporting multiple chronic conditions was also found among Medicare beneficiaries. The increase in three or more chronic conditions occurred nearly equally across sex, race, ethnicity, and income groupings.
Trends in out-of-pocket spending, 1996–2005. People using health services spent an average of $741 per person in 2005 for health care services (Exhibit 2  ), compared to $427 in 1996.13 After adjusting for inflation, this represents a 39.4 percent increase in out-of-pocket spending per person, which is consistent with a 35.3 percent rise in the National Health Expenditure Accounts for the same ten-year time period.14
An out-of-pocket expenditure index (EI) was created to measure the overall increase in out-of-pocket spending comparing 2005 to 1996 spending, holding disease prevalence constant (Exhibit 5
All insurance categories, including Medicaid recipients, had a sizable increase in out-of-pocket spending over the ten-year period. The largest increase was experienced by those in the "other public" insurance category, followed by the uninsured and Medicare-only beneficiaries. Although smaller, the EI for Medicaid recipients was substantial when controlling for rising chronic condition prevalence. When income was considered, the EI was highest for people classified as poor—the group least able to absorb increased medical costs. Low-income people had the second-highest EI. Although the EI for the near-poor group was the lowest of all income groups, it still reflected a marked increase in out-of-pocket spending. An EI was created for drugs since out-of-pocket spending was greatest for drugs of all expenditure types and was particularly high for people with multiple chronic diseases. Spending for drugs went up considerably for both people under age sixty-five and people age sixty-five and older.
Rising prevalence and spending. Our study found that out-of-pocket spending and chronic disease prevalence are increasing among not only the old-old but among people in midlife and early old age, without regard to sex, race, ethnicity, or income. The greatest growth occurred in the number of people reporting multiple chronic diseases; this is also the group with the most substantial out-of-pocket spending. Overall, out-of-pocket spending increased by 39.4 percent per person over the ten-year period. The growth in out-of-pocket spending was not evenly distributed across the population. Spending increases were 19 percent higher overall when holding the rising prevalence of chronic conditions constant, with the greatest increase among those in early old age, the "other public" insured, the uninsured, Medicare Beneficiaries, the poor and people who take prescription drugs. Medicaid continued to provide financial protection for people with chronic conditions from high out-of-pocket spending. When poverty status was considered, it became evident that Medicaid is not available to all poor people with chronic conditions. Need for coverage expansion and redesign. Our findings highlight the need to expand coverage to nonelderly adults who are unable to obtain health insurance through employers or other means. This age group is increasingly developing chronic conditions while becoming more likely to be uninsured.16 The nonelderly uninsured frequently fail to get needed medical care and drugs for chronic health conditions because of cost.17 A proper exploration of this issue is beyond the scope of this paper. Our findings also suggest that efforts to make health care affordable must be strategic and judicious. Benefit redesign should include broadening coverage for appropriate chronic care to address the rising prevalence of chronic conditions among adults beginning in middle age. Efforts to control rising health spending by increasing out-of-pocket spending for essential services and medications may have unintended long-term consequences; raising copayments and deductibles for drugs and services reduces adherence and can lead to poor disease control.18 Insurers should consider value-based insurance designs that subsidize high-value chronic care while increasing cost sharing for elective services without proven benefit.19 Study limitations. Several limitations should be considered in interpreting our findings. First, chronic conditions were self-reported, introducing potential reporting bias. Some groups, such as racial/ethnic minorities, the less educated, people with lower incomes, and the uninsured, might hesitate to report chronic conditions or might not realize that they have a chronic condition. In MEPS, reporting bias was minimized by contacting a sample of providers to populate missing data or validate self-reported data, or both. Second, out-of-pocket spending associated with travel for medical treatment, home modifications, and caretaking expenses, including loss of employment income, was not included but can add considerably to the out-of-pocket burden. Third, the inclusion of premium costs paid by insured people might have made comparisons of medical spending between the insured and the uninsured more balanced. Finally, the Medicare Part D prescription drug benefit did not begin until 2006, so we were unable to assess the impact of this new benefit and the coverage gap (the doughnut hole) on seniors’ out-of-pocket costs. GIVEN THE RISING PREVALENCE IN CHRONIC CONDITIONS among adults over age forty-four and the fact that many (but not all) chronic conditions can be attributed to poor lifestyle habits or better controlled with improved lifestyles, health insurance benefit redesign and health care reform should include incentives for people to adopt lifestyle practices that reduce chronic condition risk and improve health. Employers are increasingly recognizing the value of wellness programs and making them available to employees.20 However, more dramatic and systematic efforts are needed to induce a societal shift where primary and secondary prevention is considered a basic benefit and healthy lifestyles are the cultural norm.
Kathryn Paez (kpaez{at}s-3.com) and Lan Zhao are senior research scientists in the Center for Health Policy and Research, Social and Scientific Systems, in Silver Spring, Maryland. Wenke Hwang is an assistant professor in the Department of Social Sciences and Health Policy, Division of Public Health Sciences, at the Wake Forest University School of Medicine in Winston-Salem, North Carolina. The authors thank Lauren McGivern for her assistance in preparing this manuscript.
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