Prescription drugs play a critical role in contemporary medicine and most health insurance policies cover prescription drugs as an integral part of the benefit package. However, this was not the case in 1965 when Medicare was enacted. Consequently, Medicare does not include coverage of outpatient prescription drugs as a basic benefit. While today, over 85 percent of Medicare beneficiaries use at least one prescription drug annually, beneficiaries must obtain drug coverage through a supplemental policy, by enrollment in a Medicare+Choice plan which includes coverage for prescription drugs, or through Medicaid.
This chapter explores the sources of drug coverage and the nature of coverage that is provided to Medicare beneficiaries through different kinds of supplemental policies. Survey data is employed to analyze the sources of coverage for the Medicare and non- Medicare population in 1996 as well as the economic and demographic characteristics of those who have drug coverage and those who do not. Analysis of data on the duration of coverage for the Medicare population is also presented. Next, differences in coverage rates by alternative measures of health status are explored. Lastly, trends in drug coverage for the Medicare and non-Medicare population are analyzed.
Key findings include:
- Only 53 percent of Medicare beneficiaries had drug coverage for the entire year of 1996, although 69 percent had coverage for at least one month during the year.
- Most sources of drug coverage are potentially unstable. Almost 48 percent of beneficiaries with drug coverage through Medigap and 29 percent who were covered through Medicare HMOs had drug coverage for only part of the year. Additionally, while employer-sponsored retiree coverage, the most prevalent single source of drug benefits, covered 32 percent of Medicare beneficiaries in 1996, 14 percent of those beneficiaries had only part year coverage from their former employers.
- Drug benefits are becoming less generous. There is considerable evidence that cost sharing for prescription drugs is increasing and that overall caps on coverage are both becoming more common and are being set at lower levels. For example, Medicare+Choice plans generally have reduced drug benefits and increased enrollee out-of-pocket costs in 2000. Eighty-six percent of plans have annual dollar limits on drugs, including 70 percent of plans with annual caps of $1000 or less, and 32 percent with caps of $5Drug benefits are becoming less generous. There is considerable evidence that cost sha
- Drug coverage is likely to decline as fewer employers offer health benefits to future retirees. For example, one employer survey recorded a drop from 40 percent in 1993 to 28 percent in 1999 in the number of large firms offering health benefits to Medicare eligible retirees. Additionally, employers have tightened eligibility rules and increased cost-shifting to retirees. Of those employers that still offer medical coverage, the survey found that 40 percent are requiring Medicare-eligible retirees to pay Drug coverage is likely to decline as fewer employers offer health b
- Individuals with incomes between 100 percent and 150 percent of poverty, or individuals age 65 or older with incomes between $7,527 and $11,287 in 1996, have the lowest rate of coverage. Although coverage varies by income, nearly one-fourth of beneficiaries with incomes over 400 percent of poverty lack coverage.
- Beneficiaries are less likely to have coverage if they are very old or live outside of a metropolitan area. About 37 percent of beneficiaries age 85 and above lacked coverage at any time during 1996, compared to 28 percent of beneficiaries age 65 through 69. About 43 percent of beneficiaries living in rural areas lacked any drug coverage, compared to 27 percent of beneficiaries living in urban areas.
- Coverage rates vary little by self-reported health status, but are considerably higher for those with five or more chronic conditions. By all measures, at least one-fourth of those in any category of health status lack coverage.
- Nearly one in four in the non-Medicare population never had any coverage for drugs in 1996. About 80 percent of those with full-year coverage got that coverage through employers.
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