With the current financing arrangement, retirees will pay part of their rising health care costs out of pocket.⁸  But the majority of the money comes from other sources, particularly public programs like Medicare and Medicaid.  As Figure III shows:

“Spending on seniors’ health care equals two-thirds of their cash income.”

• Seniors' out-of-pocket spending as a percentage of total health care spending increases with age, from 12 percent for seniors ages 65 to 74, to 20 percent for seniors age 85 and older. 
• Private health insurance pays a lower percentage of total health care spending as seniors age, from 18 percent for the youngest seniors to 10 percent for the oldest seniors. 
• Public programs pay for more than two-thirds of seniors' health care spending at all age groups; however, as seniors age, Medicare pays a lower proportion (decreasing from 54 percent to 38 percent) and Medicaid pays a larger proportion (increasing from 8 percent to 25 percent).⁹

The Medicare percentages in Figure III include total reimbursements, which follow the definitions in the National Health Expenditure Accounts.  However, since seniors' premium payments are included in the Medicare percentage, the Medicare percentage is overstated while out-of-pocket spending is understated.  Further, private sources include payments made on behalf of seniors covered by individually purchased medigap policies as well as employer-sponsored insurance.  If all premium payments were instead included along with the out-of-pocket amount, the percentage of total health care paid by seniors would rise 12.4 percentage points to 27 percent for all seniors, on the average.¹⁰

“Public programs pay for more than two-thirds of seniors’ health care spending.”