What is the Medicare Cliff?

When you turn 65, a rite of passage is qualifying for Medicare to cover most of your health costs. But for more than a quarter of a million of low-income Americans, that day brings them perilously to what’s known as the Medicare Cliff.

These people—predominantly female and often Black or Hispanic—have significantly higher out-of-pocket medical costs compared to others with Medicare. They also experience a substantial worsening of their health in the two years after hitting the Medicare Cliff, according to a new study by the National Council on Aging and the LeadingAge LTSS Center at 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.”

What is the Medicare Cliff?

The Medicare Cliff is a combination of the Affordable Care Act’s broadening of eligibility for Medicaid and conflicting Medicare rules.

The Affordable Care Act—sometimes called Obamacare—let states expand their 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). Before that, Medicaid eligibility was restricted to people with incomes below the U.S. poverty rate.

But that broader income amount for Medicaid ends at age 65. As a result, roughly 280,000 Americans each year then lose their Medicaid eligibility when Medicare begins for them. Women are more likely than men to get on the Medicare Cliff, Alwin says, because women tend to have lower wages due to pay inequity and time off for caregiving.

What happens on the Medicare Cliff?

Once people are on the Medicare Cliff, they generally incur much higher out-of-pocket health costs due to premiums, deductibles and co-pays that are higher in Medicare than in Medicaid.

Medicare doesn’t pay for long-term care costs; Medicaid does. Traditional Medicare also doesn’t cover dental, vision, or hearing costs, although alternative Medicare Advantage plans from private health insurers often do.

The NCOA report found that people 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,” says Marc Cohen, one of the co-authors of the study 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 rise in the worsening of health of 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. By 2018, after the Medicare Cliff happened, 48% described their health that way.

“As a result of the higher out-of-pocket expenses, maybe they’re making choices to access the health system—the old story about cutting pills in half to save on the drug costs,” said Cohen. “You also have access to certain services in Medicaid that you don’t with Medicare.”

How the Medicare Cliff could have been prevented

The Medicare Cliff could have been avoided if policymakers had expanded Medicaid eligibility past 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 Ramsey.

Mixed messaging about health coverage at 65

People who find themselves on the Medicare Cliff also often get confusing, sometimes conflicting, notifications from Medicaid and Medicare, according to the NCOA report.

“A straightforward message of the status of your Medicaid and the transition into Medicare would go a long way,” says Alwin.

Researchers were told that the notices provoked anxiety for some on the Medicare Cliff and made them feel overwhelmed by the new health coverage choices they needed to make.

“A lot of times, they don’t find out until the first time they’re accessing benefits under Medicare or get a bill and they say, ‘I haven’t seen this bill before,’ because they didn’t realize that Medicaid under 65 was paying for some of that,” Cohen says.

Underutilized Medicare subsidy programs

There are federal and state Medicare subsidy programs for low- and moderate-income Americans, but they are vastly underutilized. Only about half of people who qualify for Medicare Savings Programs use them.

“A lot of people don’t even know these programs exist,” says Cohen.

AARP estimates that at least 1.47 million Americans could save $2,000 or more each year through Medicare Savings Programs that help pay Medicare Part A, B and D premiums and deductibles, co-insurance and co-payments.

The National Council on Aging believes more low- and moderate-income Americans would know about the subsidy programs if Congress and the President increased funding to get the word out.

Later in July, the National Council on Aging 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 aim is to better target people who qualify 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 like you’re saying these people are worthy of having financial protection until they hit 65.”