The University Record, October 11 , 1999

Adding Rx coverage to Medicare: New study estimates effects on drug use, expenditures

By Diane Swanbrow
News and Information Services

If prescription drug coverage were added to Medicare, older Americans who do not currently have insurance covering prescriptions would be 8.8 percent more likely to use any prescription drugs, and overall spending on prescription drugs would increase by 13 percent.

Those are among the findings of a new study estimating how insurance coverage affects demand for prescription drugs, conducted by researchers at the U-M and RAND, and published in the September issue of Medical Care.

The study, funded by the National Institute on Aging (NIA), was conducted by Lee A. Lillard, a senior research scientist at the Institute for Social Research; Jeannette Rogowski, a senior economist at RAND; and Raynard Kington, director of the Division of Health Examination Statistics at the National Center for Health Statistics/Centers for Disease Control.

“Based on the findings of this study, expansion of Medicare benefits to include prescription drugs would significantly increase the likelihood that elderly Americans would use prescription drugs,” says Lillard, an economist who directs the Michigan Retirement Research Center. Rogowski says, “It would also decrease the financial burden felt by elderly households associated with the purchase of prescription medications.”

“Prescription drugs are an increasingly important component of medical treatment. They are also a significant and often unaffordable out-of-pocket cost for many older people,” notes Richard M. Suzman, associate director of behavioral and social research at the NIA. “This study helps us understand the potential impact that new drug benefits might have on benefits programs and on individuals.”

The study is based on a sample of 910 people age 66 and older, part of a supplement to the U-M Panel Study of Income Dynamics, a nationally representative, longitudinal survey started in 1968 of U.S. individuals and families.

Of those in the study, 85 percent used some prescription drugs during the 12 months before they were surveyed. Among those users, the average expenditure in 1990 was $698, with an average out-of-pocket expense of $367 per person. Eighty percent had private insurance, but only 38 percent had private insurance that covered prescriptions.

The researchers found that health status, not insurance coverage, was by far the most important predictor of prescription drug use. But once health status was controlled for, they found that while those with insurance coverage were more likely than those without coverage to have any use of prescription drugs, coverage was not a significant predictor of the amount people spent on prescriptions.

Overall, for those age 66 and older, they found coverage of prescription drugs would increase the likelihood of using any prescription drugs by 8.8 percent among persons without current insurance coverage for drugs. In 1990, that would have implied a 20 percent increase in overall spending for prescription drugs by older Americans, according to Rogowski. But since more older Americans currently have prescription coverage than in 1990, she estimates that overall spending would have increased by only 13 percent, given the level of prescription drug coverage among the elderly today.

These estimates are based on a drug benefit that reflects the average retiree health benefit policy in 1990. Medicare-negotiated discounts on drug prices, along with the size of potential co-payments, deductibles or annual limits on benefit amounts, would lower the price tag of prescription drug coverage.