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

1. 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

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

3. Why Study Burdens? • Most families healthy in given year • Illness, however, is a fact of life • 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

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

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

6. Conventional Results: 10% and 20% Burden Frequency (OOPMED+OOPPREM) by Poverty Level, 02&03

7. Impact of Tax Subsidy

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

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

10. Family Tax Subsidies on OOPMED and OOPPREM, by Poverty Level, 02&03 Average Subsidy Subsidy Rate

11. Impact of Tax Subsidy on 20% Burden Frequency (OOPMED+OOPPREM) by Poverty Level, 2002&2003

12. Impact of Tax Subsidy on OOPMED+OOPPREM Burdens > 20%, by Poverty Level, 02&03

13. Bias from Ignoring Subsidies • Conventional studies ignore subsidies • 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 • Can one “safely” ignore subsidies?

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

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

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

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

18. Summary • Tax subsidies modestly reduce out-of-pocket burdens • Larger impact on burdens inclusive of cash wage offsets for employer contributions • Little benefit for poor • Middle income groups benefit more • 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)

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

20. 20% Burden Frequency vs. Self-Reported “Bill Problems” Adults Age 19-64 in 2004 28% 7.7%

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

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

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

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

25. Quarterly vs Monthly Concentration • Peak out-of-pocket month: 44.5% • Peak out-of-pocket quarter: 60.5% • For poor: 76.2% of OOP occurs in a single quarter

26. Does Income Fall as Medical Expenditures Peak? • 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

27. Does Income Fall as Medical Expenditures Peak? • 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

28. 20% Burdens among Nonelderlyby Poverty Level, 03&04 43.6 34.6 27.0 21.5 16.7 6.9 1.1

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

30. 20% Burdens by Family Coverage, 03&04

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

32. Within-Year Burden Conclusions • >40% poor have high monthly burden • 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 • Monthly measure for adults in 2003 only slightly less than “bill problem” frequency (26.9% vs. 28%)

33. Burden of Uncompensated Care

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

35. Bounding 20% Annual Burdens for Uncompensated Care

36. Monthly Burdens (20%)

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

38. Conclusions • Tax subsidies modestly reduce burdens • Little goes to 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 • More detailed analysis may help solve discrepancy between burden vs bill problem frequencies