Insurance coverage for prescription drugs: effects on use and expenditures in the Medicare population.
BACKGROUND
Although most of the elderly are covered by Medicare, they potentially face large out-of-pocket costs for their health care because of excluded services. Aside from nursing home care, the exclusion of prescription drugs is one of the most significant. Several earlier policy initiatives have proposed adding prescription drug coverage to the Medicare program. To determine the effects of such an expansion, one must account for the potential increase in the demand for prescription drugs from providing insurance coverage.


METHODS
The study uses a new data source, the RAND Elderly Health Supplement to the 1990 Panel Study of Income Dynamics (PSID). The endogenity of insurance coverage is tested using instruments that exploit the longitudinal nature of the data. Equations are estimated on 910 persons (> or = 66 years) using a two-part model.


RESULTS
Insurance coverage for prescription drugs significantly increases the probability of use, but not of total expenditures, among those who use prescription drugs. However, insurance coverage significantly lowers out-of-pocket expenditures, thereby decreasing the financial burden on elderly households associated with prescription drug use. Medicaid coverage has effects that are smaller than those for private insurance, but the magnitude is less precisely estimated. These findings imply that if prescription drug coverage were added to Medicare, expected expenditures on drugs would rise by on average $83 for each elderly Medicare beneficiary (in 1990 dollars), although this increase is significant only at the 90% level. If the benefit had been included under Medicare, expected spending on prescription drugs by the elderly would have risen by approximately 20%, or $2.6 billion in 1990.
Lillard
L A
LA
Department of Economics and Institute for Social Research, University of Michigan, Ann Arbor, USA.
Rogowski
J
J
Kington
R
R
D000368:Aged; D002908:Chronic Disease / Q000188:drug therapy; D016527:Drug Costs; D004363:Drug Utilization; D005260:Female; D005382:Financing, Personal / Q000706:statistics & numerical data*; D005102:Health Expenditures / Q000706:statistics & numerical data*; D006291:Health Policy; D006304:Health Status; D006801:Humans; D019458:Insurance Coverage / Q000706:statistics & numerical data*; D007356:Insurance, Pharmaceutical Services / Q000191:economics / Q000706:statistics & numerical data*; D008137:Longitudinal Studies; D008297:Male; D006278:Medicare / Q000191:economics / Q000706:statistics & numerical data*; D020380:Needs Assessment; D014481:United States