* projected costs assume an annual 5.1% inflation rate

Figure 1. Average Out-of-Pocket Health Care Spending, for All Medicare Beneficiaries Age 65 and Up

$3,455

$5,144

$8,459

$0

$2,000

$4,000

$6,000

$8,000

$10,000

2003 2011* 2021*

* Projected costs assume an annual 5.1% inflation rate.

Figure 2. Average Annual Supplemental Medigap Plan F Premium for Medicare Beneficiaries Age 65 and Up

$1,728

$2,329

$3,830

$0

$1,000

$2,000

$3,000

$4,000

$5,000

2003 2011* 2021*

* Projected costs assume an annual 5.1% inflation rate.

Figure 3. Medicare Beneficiaries Without Supplemental Coverage, 2002

12%13%

17%

12%

6%

0%

5%

10%

15%

20%

Percentage by annual household income

Allbeneficiaries

<$10,000 $10,001–$20,000

$20,001–$40,000

>$40,000

Figure 4a. Average Out-of-Pocket Health Care Spendingin 2003, for Poor and Middle-Income Individuals

$2,995$3,360 $3,475

$3,785

$0

$1,000

$2,000

$3,000

$4,000

$5,000

<135% 135%–199% 200%–399% >400%

Percent of Federal Poverty Level

Figure 4b. Average Out-of-Pocket Health CareSpending as a Percentage of Income in 2003,

for Poor and Middle-Income Individuals

33%28%

21%

12%

0%

10%

20%

30%

40%

50%

<135% 135%–199% 200%–399% >400%

Percent of Federal Poverty Level

Figure 5. How Projected Account Holdings at Age 65Vary for Poor- and Middle-Income Individuals

$0

$10,000

$20,000

$30,000

$40,000

<100% 100%–149%

150%–199%

200%–299%

>300%

15 years, 0.5% of income 15 years, 1.0% of income

Percent of Federal Poverty Level

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

<100% of poverty* 100-149% of poverty**

5 yr .5% unsubsidized 5 yr .5% w/ low income subsidy

15 yr .5% unsubsidized 15 yr .5% w/ low income subsidy

5 yr 1% unsubsidized 5 yr 1% w/ low income subsidy

15 yr 1% unsubsidized 15 yr 1% w/ low income subsidy

Figure 6. Pretax Account ContributionsWith and Without Low-Income Subsidy

Accumulated under 5- and 15-year investment scenarios

* 50% annual subsidization level

** 25% annual subsidization level.

Figure 7. Prefunded Account Holdings vs.Annual Medical Costs in 2021, by Income Level

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

<100% ofpoverty

100-149% ofpoverty

150-199% ofpoverty

200-299% ofpoverty

>300% ofpoverty

Medigap Plan F average annual premiumAverage annual out-of-pocket health care spending15 yr savings at 0.5% income & low income subsidy15 yr savings at 1% income & low income subsidy

Figure 8. Account Holdings vs. Costs: The Difference Between Accounts Opened at Age 50 and at Age 60

$0

$2,000

$4,000

$6,000

$8,000

$10,000

Opened at age 60 (2011 projection) Opened at age 50 (2021pProjection)

Account Holdings

Medigap Plan F average annual premiumAverage annual out-of-pocket health care spending, 175% of poverty

For individuals with incomes between 150% and 199% of FPL and at 1 percent investment level

Figure 9a. Participation in IRA or 401(k)-Type Plans,by Income Quintile

23.2%

36.2%

48.2%59.1%

73.5%

0%

20%

40%

60%

80%

100%

Firstquintile

Secondquintile

Thirdquintile

Fourthquintile

Fifthquintile

Percentage of individuals ages 55 to 64 in 2004

Source: Survey of Income and Program Participation Study (2004, Wave 1).

Figure 9b. Participation in IRA or 401(k)-Type PlansRelative to Poverty Level

23%29% 31%

55%

0%

20%

40%

60%

80%

100%

<100% 100%–199% 200%–299% >300%

Percentage of individuals ages 55 to 69 in 2000

Source: Health and Retirement Study, 2000.

Percent of Federal Poverty Level

Figure 10a. Average Retirement Account Holdingsfor Individuals Ages 55 to 69, by Income Quintile, 2004

0%

20%

40%

60%

80%

100%

All incomelevels

Firstquintile

Secondquintile

Thirdquintile

Fourthquintile

Fifthquintile

Source: Survey of Income and Program Participation Study (2004, Wave 1).

Percentage of individuals with no holdings

Figure 10b. Estimated Average Retirement Account Holdingsfor Individuals Ages 55 to 69, by Income Quintile

$42,500

$10,000$25,700

$44,200

$74,800

$152,200

$0

$50,000

$100,000

$150,000

$200,000

All incomelevels

Firstquintile

Secondquintile

Thirdquintile

Fourthquintile

Fifthquintile

Source: Authors’ tabulation based on the Survey of Income and Program Participation Study (2004, Wave 1), the 2000 Health and Retirement Study, and Johnson, Burman, Kobes (2004).

Figure A-1. Projected Holdings at Age 65by Percentage of FPL and Under Alternative Assumptions

$0

$10,000

$20,000

$30,000

$40,000

<100 FPL 100-149 FPL 150-199 FPL 200-299 FPL 300+ FPL

Figure B-1. Subsidized* Account Holdingsand Average Annual Costs for Individuals

Under 100% of Federal Poverty Level

$6,152

$3,830

$1,610

$3,220

$0

$2,000

$4,000

$6,000

$8,000

$10,000

Avg. annualout-of pockethealth care

Avg. annualMedigap Plan F

premium

15-yearinvestment,

0.5% of income

15-yearinvestment,

1.0% of income

Accumulated pretax contribution at 0.5% or 1.0% of income

* Subsidized annually at the 50% level.

Figure B-2. Subsidized* Account Holdingsand Average Annual Costs for Individuals

at 100%–149% of Federal Poverty Level

$7,232

$3,830$3,100

$6,200

$0

$2,000

$4,000

$6,000

$8,000

$10,000

Avg. annualout-of pockethealth care

Avg. annualMedigap Plan F

premium

15-yearinvestment,

0.5% of income

15-yearinvestment,

1.0% of income

Accumulated pretax contribution at 0.5% or 1.0% of income

* Subsidized annually at the 25% level.

Figure B-3. Unsubsidized Account Holdingsand Average Annual Costs for Individuals

at 150%–199% of Federal Poverty Level

7,232

3,830 3,893

7,787

$0

$2,000

$4,000

$6,000

$8,000

$10,000

Avg. annualout-of pockethealth care

Avg. annualMedigap Plan F

premium

15-yearinvestment,

0.5% of income

15-yearinvestment,

1.0% of income

Accumulated pretax contribution at 0.5% or 1.0% of income

Figure B-4. Unsubsidized Account Holdingsand Average Annual Costs for Individuals

at 200%–300% of Federal Poverty Level

$9,022

$3,830

$5,834

$11,668

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

Avg. annualout-of-pockethealth care

Avg. annualMedigap Plan F

premium

15-yearinvestment,

0.5% of income

15-yearinvestment,

1.0% of income

Accumulated pretax contribution at 0.5% or 1.0% of income

Figure B-5. Unsubsidized Account Holdingsand Average Annual Costs for Individuals

Above 300% of Federal Poverty Level

$9,022

$3,830

$16,382

$32,764

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

Avg. annualout-of-pockethealth care

Avg. annualMedigap Plan F

premium

15-yearinvestment,

0.5% of income

15-yearinvestment,

1.0% of income

Accumulated pretax contribution at 0.5% or 1.0% of income