The authors use data from the Health and Retirement Study to examine the elderly's out-of-pocket health care spending. They find that Medicare HMOs, employer supplements, and Medicaid effectively insulate against the risk of high expenditures. At the ninetieth percentile, Medicare beneficiaries with employer supplements or enrolled in Medicare HMOs spend $1,600 less out of pocket than beneficiaries with traditional Medicare spend. For the poor elderly, Medicaid offers similar protection. Among the near-poor elderly, there is little employer coverage, so Medicare HMOs provide most of the protection against financial risk. There is evidence that Medicare HMO benefits have eroded since 1998, raising the question of whether the near-poor have lost financial protection since then.
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