Medicare Health Accounts: A New Policy Option to Help Adults Save for Health Care Expenses Not Covered by Medicare

U.S. health care costs are climbing by 7 percent a year and are expected to continue to outpace growth in the economy over the next decade. Rapid medical cost inflation disproportionately affects those with the greatest health care needs and the most exposure to health costs. Among those at greatest risk are older adults. While Medicare was designed to protect people over age 65 from health costs and facilitate access to needed services, the program has substantial costsharing requirements and does not cover such high-cost services as long-term care. Medicare beneficiaries spend 22 percent of their incomes on premiums and out-of-pocket medical expenses—a figure that is projected to increase to 30 percent by 2025.

New strategies are needed to encourage people to save more for their retirement. The Commonwealth Fund Survey of Older Adults, a nationally representative sample of 2,007 adults ages 50 to 70 conducted in late 2004, asked respondents about their interest in new savings accounts that could be created within the Medicare program. Among older adults in households in which at least one member was working, nearly seven of 10 (69%) said they would be interested in having a Medicare Health Account.