Long-Term Determinance of Supplemental Health Insurance Coverage in the Medicare Population

The Medicare program provides health insurance coverage for virtually all elderly Americans. However, the program does not cover some important types of medical services, including prescription drugs, dental services and most long-term care. Expenditures for these services, as well as the copayments and deductibles under the Medicare program, may result in significant out-of-pocket expenditures for the elderly. As a result, many have private insurance to supplement Medicare. Using data from a new data source, the 1990 Health Supplement to the Panel Study of Income Dynamics, this paper examines the determinants of private insurance coverage among the elderly. Among economic factors, wealth is the most important in the decision to purchase private insurance among the elderly. Controlling for economic factors, blacks, persons with less education and unmarried women are less likely to purchase insurance to supplement Medicare. Despite the potential for adverse selection, there is no evidence that persons in prior poor health are more likely to purchase supplemental insurance. Among elderly persons who have supplemental insurance through employment-based sources, the primary determinant of having insurance is work history. The probability of holding employer-provided insurance increases with job tenure and is related to prior occupation. The primary determinant of whether a private policy covers prescription drugs or dental care, two important excluded services under Medicare, is that the source of the insurance was an employer. The current trend among employers toward decreased generosity of post-retirement health benefits implies that fewer older Americans will have insurance coverage for these services.