INTRODUCTION

One out of every five elderly Americansfaces each day on a limited income withlittle flexibility for extra or unexpectedmedical expenses. When medical care isneeded, these 6 million poor and near-poorelderly Americans depend on Medicare forassistance with their medical bills. The uni-versal coverage of Medicare assures thementry to America's health care system andoffers protection from financial catastrophewhen illness strikes. However, gaps in thescope of Medicare's benefits and financialobligations for coverage can result inonerous financial burdens.

Low-income elderly people are particu-larly vulnerable because they are morelikely to be experiencing health problemsthat require medical services than thosewho are economically better off, but areless able to afford needed care because oftheir lower incomes. Even routine care,such as physician visits or prescriptiondrugs, can require older and poorer ben-eficiaries to make hard choices betweenbasic necessities and needed health careservices. Medicaid serves as an importantcomplement to Medicare by assisting low-income Medicare beneficiaries with theirMedicare premiums and cost-sharing andby providing coverage for prescriptiondrugs and long-term care (LTC) servicesthat are not available through Medicare.Without Medicaid's assistance, the costs ofbasic medical care can impede access to

Medicare, Medicaid, and the Elderly PoorDiane Rowland, Sc.D., and Barbara Lyons, Ph.D.

The authors are with the Henry J. Kaiser Family Foundation.The opinions expressed are those of the authors and do not nec-essarily reflect those of the Henry J. Kaiser Family Foundationor the Health Care Financing Administration.

care and erode financial security for lowincome elderly people.

This article profiles the economic andhealth status of the low-income elderlypopulation served by Medicare, assessesthe impact of Medicare, and examines therole Medicaid plays as a supplement toMedicare. Particular emphasis is given tothe burdens medical expenses impose onlow-income elderly people, the extent towhich coverage to supplement Medicarecan assist in alleviating the impact of finan-cial burdens on access to care, and the im-plications of potential changes in the scopeand structure of Medicare and Medicaidfor the elderly low-income population.

POVERTY AND ILLNESS IN THEELDERLY POPULATION

Despite general improvements in theeconomic situation of the elderly popula-tion over the last 3 decades, many elderlyAmericans continue to struggle to pay liv-ing expenses on low or modest incomes.Forty-one percent of the Nation's 31 millionelderly people living in the communityhave incomes below twice the Federal pov-erty level (FPL) and 1 in 5 are poor or near-poor (U.S. Bureau of the Census, 1996).

In 1994, the FPL was $7,100 per year inincome for a single elderly adult and $9,000for an elderly couple. Twelve percent of theelderly population-3.7 million people-had incomes below the poverty level andanother 7 percent-2.2 million people-were near-poor with incomes between 100and 125 percent of FPL (Figure 1). 1

' The figures and tables appear at the end of the article.

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Together, these 5.9 million poor and near-poor people comprise Medicare's non-insti-tutionalized low-income elderly population.Another 1.4 million elderly reside in nurs-ing homes and receive assistance fromMedicaid (Lyons, Rowland, and Hanson,1996).

The likelihood of living on a low incomeis greatest for women, minorities, and theoldest Americans (Figure 2). Poverty ratesincrease with age, with 23 percent ofpeople 75 years of age or over poor or near-poor, in contrast to 16 percent of those 65-74 years of age. Nearly one-fourth of eld-erly women are poor or near poor,reflecting their lower wage levels duringworking years, their increased risk of fi-nancial stress from widowhood, and lon-gevity that exceeds savings. Elderly mi-norities are particularly vulnerable to lowincomes. Thirty-seven percent of black eld-erly people and 36 percent of Hispanic eld-erly people have incomes below 125percent of FPL.

Poverty is clearly linked to educationallevel and highly correlated with maritaland living arrangements. Well-educated,married couples are financially better offthan those who are less educated, single,and living alone. Educational levels corre-spond to different job opportunities and ca-reers, with the more highly educated likelyto have better retirement benefits andmore personal savings from their workingyears. Among today's elderly population,42 percent have less than a high schooleducation, but there are significant differ-ences by income. Seventy percent of thepoor elderly, compared with 23 percent ofthe non-poor elderly, are without a highschool diploma (Figure 3).

Marital status and living arrangementalso differ significantly by income, with 42percent of the poor compared with 21 per-cent of the non-poor living alone, and onlyone-third (31 percent) of the elderly poor

are married, in contrast to 72 percent of thenon-poor elderly. This reflects the olderage composition of the poor elderly (14 per-cent are over 85 years of age comparedwith 5 percent of the non-poor), and the tolltime, illness, and loss of a spouse can im-pose on an individual's economic well-be-ing. Yet it also means that the poor elderlyare less likely to have family or companionsliving with them who can assist withmedical or financial needs.

Medicare coverage is especially impor-tant to low-income elderly people becausethey are in poorer health than higher in-come elderly people and have few financialassets to draw on when faced with highmedical costs. Poor health status, multiplechronic conditions, and functional limita-tions are all more prevalent among the low-income elderly population than amongthose with higher incomes. These condi-tions increase the need for and utilizationof medical services which in turn increasesthe out-of-pocket expenses for cost-sharingand uncovered medical expenses.

The burden of illness is a serious prob-lem for many poor and near-poor elderlypeople. Overall, one-fourth (24 percent) ofthe elderly population reports their healthstatus as fair or poor (Figure 4). Over one-third (36 percent) of the poor and nearlyone-third (32 percent) of the near-poor eld-erly report their health as fair or poor com-pared with only 17 percent of the non-poorelderly with incomes above 200 percent ofFPL. Poor health status has been shown tobe highly predictive of the need for medicalcare (Manning, Newhouse, and Ware, 1981).

Chronic conditions requiring increasedcontact with the medical care system andongoing health care costs are more preva-lent in the elderly population than in thenon-elderly population and can be particu-larly burdensome for low-income elderlypeople. All elderly people are at increasedrisk of chronic illness, but low-income

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people are more likely to have chronichealth problems than non-poor elderlypeople (Figure 5). Nearly two-thirds (65percent) of poor elderly people suffer fromarthritis that can impair mobility and resultin the need for medication for treatmentand pain relief. Similarly, the prevalence ofdiabetes and hypertension, both illnessesrequiring substantial medication costs andongoing physician supervision, is highestin the low-income cohorts of the elderlypopulation.

Functional disabilities contributing tothe need for LTC assistance further com-pound the medical problems of elderlypeople (Rowland, 1989). Among non-insti-tutionalized elderly Medicare beneficiaries;7.8 percent report needing help to performone or more activities of daily living(ADLs), such as dressing, eating, andtoileting, and many more report difficultyin carrying out these activities due tohealth problems. The rates are higher forthe poor and near-poor elderly, with 12.9percent of the poor and 10.5 percent of thenear-poor reporting such limitations (Fig-ure 6). Low-income elderly people are alsomore likely to have three or more ADLsand increased dependency because of mul-tiple limitations than those with higher in-comes. Elderly people with functional limi-tations are often financially strained bynon-medical needs and expenses as well asby the need for additional services and spe-cial transportation arrangements to obtainmedical care.

In sum, poor and near-poor elderlypeople are more likely to be experiencinghealth problems for which they requiremedical services than elderly people whoare economically better off, but they areless able to afford needed care because oftheir lower incomes. For those who needmedical care and incur large out-of-pocketexpenditures, medical expenses can lead to

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impoverishment. The extent to which in-surance is available to assist with medicalbills becomes a crucial factor.

ROLE OF MEDICARE

With the enactment of Medicare in 1965,basic health insurance protection for hospi-tal care and physician services was ex-tended to nearly all elderly Americans. Theuniversal nature of Medicare coveragemeans that virtually no elderly person iswithout insurance. Medicare facilitates ac-cess to physician services and guaranteesadmission to a hospital when needed. Itmeans that coverage for the elderly doesnot vary by State of residence and does notlimit the elderly's choice of providers in themainstream of American medical care.Over its 30 years of operation, Medicarehas provided elderly Americans, and espe-cially poor elderly Americans, with the op-portunity to benefit from the many ad-vances of American medical technology,most notably treatment for heart diseaseand cataract surgery, and to gain improvedaccess to the health care system (Madansand Kleinman, 1980