Cash-strapped Retirees Can Use Home Equity to Pay for Medications

Nearly 25% of low-income retirees have difficulty paying for medications, even well after the passage of Medicare Part D in 2006, which had the intent of reducing out-of-pocket drug costs for seniors. In a four-year period between 2011 and 2015, Medicare beneficiaries spent an average of between $620 and $700 on prescription medications every year, a figure which sharply increased in the same period for those with serious health conditions such as cardiovascular disease or diabetes.

This is according to the findings of a 2020 study conducted by Ohio State University Professors Stephanie Moulton, Donald Haurin and Caezilia Loibl, as recently highlighted by the Boston College Center for Retirement Research (CRR) in a blog post.

One potential solution for this kind of financial issue is a senior’s home equity, according to the blog post.

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“Although a homeowner probably wouldn’t use this strategy just to cover drug copayments, new research finds that older Americans who tap equity significantly increase their adherence to their medications – and this finding has broader significance for improving their retirement security,” the post reads.

Most older homeowners are typically reluctant to pull equity out of their homes through a home equity lending instrument such as a home equity loan, mortgage refinancing or reverse mortgage, the post reads. However, an issue that remains for many of these same seniors is a lack of sufficient cash to fulfill all of their needs in retirement, up to and including medical needs that include medications, reduce medical bills or to pay off outstanding debt.

“To test how home equity might help retirees, the researchers used a series of surveys between 1998 and 2016 that have data on older people’s finances and ask whether, at any time in the past two years, they took ‘less medication than prescribed … because of the cost,’” the post reads. “The analysis controlled for various influences on financial well-being, including education, marital status, and cognitive health, as well as financial resources.”

The results proved to demonstrate that home equity can make a difference in the lives of the affected retirees who participated in the relevant surveys, according to the post.

“Extracting home equity improved adherence to medications in the short term, particularly for homeowners over 65 who have little wealth outside of their homes,” the post says. “Separately, the researchers showed that retirees who tapped home equity were significantly more likely to take their medications at a critical time – after experiencing a serious illness.”

However, the same financial products that can give retirees immediate relief can also have an outstanding impact on their monthly expenses, the study concluded according to the post.

“One solution to consider would be government programs that provide retirees with more affordable home equity loans, lines of credit, and reverse mortgages,” the researchers said based on the post.

Read the blog post at the Boston College CRR, and the full study.

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