Medicare Cliff Raises Costs for Seniors

The “Medicare Cliff” is causing approximately 280,000 low-income seniors to face significantly higher healthcare costs and worsening health each year as they transition from Medicaid to Medicare at age 65.
Why it matters: These vulnerable individuals, predominantly women and minorities, are experiencing a steep decline in their health and financial well-being due to the loss of comprehensive Medicaid coverage.

The details:

• The Affordable Care Act expanded Medicaid eligibility to cover low-income adults aged 19-64 with incomes up to 138% of the federal poverty level, but this eligibility ends at age 65 when Medicare begins.
• Medicare has higher out-of-pocket costs compared to Medicaid, and it doesn’t cover long-term care or certain services like dental, vision, and hearing.
• People on the Medicare Cliff saw their out-of-pocket medical costs rise from $2,600 annually to $3,100 within two years, according to a study by the National Council on Aging (NCOA) and the LeadingAge LTSS Center at the University of Massachusetts, Boston.
• The study also found that the percentage of people reporting their health as fair or poor increased from 34% in 2012 to 48% in 2018 after the Medicare Cliff took effect.

What they’re saying:

• “Once they have a birthday and turn 65, we flip the switch and they plummet into a sea of costs related to health care,” says Ramsey Alwin, CEO of the National Council on Aging. “These are the most vulnerable individuals.”
• “Medicaid actually pays for some of Medicare’s co-insurance provisions, deductibles and co-pays,” explains Marc Cohen, one of the study’s co-authors. “So, you can end up in this weird situation where, because you lose Medicaid coverage when you hit age 65, you end up having greater out-of-pocket medical expenses.”

The background: The Medicare Cliff could have been avoided if policymakers had expanded Medicaid eligibility beyond age 65 when passing the Affordable Care Act. Confusing and conflicting notifications from Medicaid and Medicare, as well as underutilized subsidy programs, have also contributed to the problem.

What’s next: The NCOA plans to launch a national map with information about eligibility for Medicare Savings Programs and prescription drug subsidies to help enroll more low-income seniors. Advocates hope Congress and the Biden administration will pass legislation to address the Medicare Cliff issue.

Full story

When you turn 65, a rite of passage is qualifying for Medicare to cover most of your health costs. However, for more than a quarter of a million low-income Americans, that day brings them perilously close to what’s known as the Medicare Cliff. These individuals—predominantly female and often Black or Hispanic—face significantly higher out-of-pocket medical costs compared to others with Medicare and experience a substantial worsening of their health in the two years following their shift to Medicare, according to a report by the National Council on Aging and the LeadingAge LTSS Center at the University of Massachusetts, Boston.

“Once they have a birthday and turn 65, we flip the switch and they plummet into a sea of costs related to health care,” says Ramsey Alwin, CEO of the National Council on Aging (NCOA). “These are the most vulnerable individuals.”

The Medicare Cliff stems from the Affordable Care Act’s expansion of Medicaid programs to cover low-income adults aged 19-64 with incomes up to 138% of the federal poverty level, roughly $21,000 for an individual in 2024. Prior to this expansion, Medicaid eligibility was limited to those with incomes below the U.S. poverty rate.

However, this broader income qualification for Medicaid ends at age 65. Consequently, approximately 280,000 Americans each year lose their Medicaid eligibility when Medicare begins for them. Women are more likely than men to get on the Medicare Cliff, due to lower wages resulting from pay inequity and time off for caregiving responsibilities.

Once people are on the Medicare Cliff, they generally incur much higher out-of-pocket health costs due to premiums, deductibles, and co-pays, which are higher in Medicare than in Medicaid. Additionally, Medicare doesn’t pay for long-term care costs, unlike Medicaid, and traditional Medicare doesn’t cover dental, vision, or hearing costs, although alternative Medicare Advantage plans from private health insurers often do. The NCOA report found that individuals who wound up on the Medicare Cliff saw their out-of-pocket medical costs rise from $2,600 annually to $3,100 within two years.

“Medicaid actually pays for some of Medicare’s co-insurance provisions, deductibles and co-pays,” explains Marc Cohen, one of the study’s co-authors and director of the Center for Long-Term Services and Supports at UMass Boston. “So, you can end up in this weird situation where, because you lose Medicaid coverage when you hit age 65, you end up having greater out-of-pocket medical expenses.”

The study also showed a steep increase in the worsening of health for people after stepping onto the Medicare Cliff. In 2012—before the Affordable Care Act took effect—34% of people whose incomes would have put them on the Cliff reported their health as fair or poor.

Protecting seniors from healthcare costs

By 2018, after the Medicare Cliff came into effect, 48% described their health that way. The Medicare Cliff could have been avoided if policymakers had expanded Medicaid eligibility beyond age 65 when passing the Affordable Care Act.

“We knew when we made [Medicaid] eligibility more generous that this would be a brutal transition, but the political will wasn’t exercised to smooth it out,” says Alwin. People who find themselves on the Medicare Cliff often get confusing, sometimes conflicting, notifications from Medicaid and Medicare, according to the NCOA report. “A straightforward message about the status of your Medicaid and the transition into Medicare would go a long way,” says Alwin.

Researchers were told that these notices provoked anxiety and made recipients feel overwhelmed by the new health coverage choices they needed to make. There are federal and state programs for low- and moderate-income Americans, but they are vastly underutilized. Only about half of those who qualify for Medicare Savings Programs use them.

AARP estimates that at least 1.47 million Americans could save $2,000 or more each year through Medicare Savings Programs that help pay for Medicare premiums, deductibles, co-insurance, and co-payments. The National Council on Aging believes more low- and moderate-income Americans would become aware of these subsidy programs if Congress and the President increased funding to promote them. Later this month, the NCOA plans to launch a national map with information about who is eligible for Medicare Savings Programs and subsidies for Part D prescription drug coverage with Medicare.

The objective is to better target eligible individuals and help them enroll. “I’m feeling hopeful and optimistic about that,” says Alwin. Alwin and Cohen hope Congress and the Biden administration will pass a law to end the Medicare Cliff problems.

“This is not a Democratic or Republican issue,” said Cohen. “It’s about ensuring that these individuals have financial protection until and beyond the age of 65.”