Report to the President: Prescription Drug Coverage, Spending, Utilization, and Prices.. Chapter 2. Effects of Prescription Drug Coverage on Spending and Utilization

04/01/2000

Insurance coverage that includes coverage of prescription drugs plays a critical role in assuring access to needed medications. People with coverage not only fill more prescriptions than people without coverage; they are likely to have access to a broader array of therapies, including more costly therapies. People without drug coverage face greater financial burdens and may sometimes be unable to follow the courses of treatment ordered by their physicians. There are even some indications that physicians themselves may recommend different therapies to people with and without coverage.

As will be seen, the effects of prescription drug coverage persist across different age groups, income levels, and health statuses. Coverage increases prescription drug utilization, changes the mix of different drugs received, and reduces financial burdens for all population groups. However, access to drug coverage is most important for the elderly, simply because they require more medications, including a higher prevalence of long-term maintenance drugs for chronic conditions.

This chapter will first present detailed comparisons of utilization and spending for Medicare beneficiaries and the total population with and without drug coverage. Second, it will examine some of the possible reasons for those differences and will consider the consequences of being without coverage. Finally, it will summarize trends in utilization and spending and some of the factors that influence these changes.

Key findings include:

  • Medicare beneficiaries with coverage fill nearly one-third more prescriptions than those without coverage.
  • Although total drug spending for beneficiaries with coverage is nearly two-thirds higher, those without coverage pay nearly twice as much out of pocket ($463 versus $253).
  • On average, beneficiaries with coverage pay out of pocket for about one-third of their total spending on drugs. However, the share of spending paid out of pocket varies by source of coverage, from 58 percent for those with Medigap coverage to 20 percent for those with Medicaid.
  • Differences in utilization and spending between Medicare beneficiaries with and without drug coverage generally hold up across different income levels, ages, health status, and other categories.
  • Drug insurance makes an especially large difference in dollar terms for those in the poorest health. Among beneficiaries with five or more chronic conditions, those with coverage had much higher total spending ($1,402 versus $944) and much lower out-of-pocket spending ($412 versus $944) than beneficiaries without coverage.
  • Among people who are not Medicare beneficiaries, similar differences in utilization and spending exist between prescription drug users with and without coverage. Those with coverage for drugs fill two-thirds more prescriptions but spend a third less out of pocket than those without coverage.
  • About a third of Medicare beneficiaries accounted for three-fourths of beneficiaries’ total drug spending in 1996. Only 13 percent had no spending at all. Spending on prescription drugs in the non-Medicare population is even less evenly distributed.
  • Self-selection does not explain the difference in spending between Medicare beneficiaries with and without drug coverage. Even among beneficiaries with the same poor health status, more prescriptions are written for people with coverage, and people without coverage are less likely to fill prescriptions.
  • Prescription drugs take up about one sixth of all health spending by the elderly. Out of pocket spending for prescription drugs is a larger proportion of health spending for the elderly than for younger people. Prescription drug spending also accounts for a larger share of spending by people with low incomes than it does for people with higher incomes.
  • The burden of prescription drug costs creates access problems for some beneficiaries. High spenders with incomes below the poverty line spend more than one-fourth of their income on drugs. Among Medicare beneficiaries, 10 percent of those with only Medicare coverage report not being able to afford a needed drug, compared to 2 percent of those with a non-Medicaid supplement.
  • Drug spending has grown more quickly than other health spending throughout the 1990’s. Price increases, higher utilization, and the use of newer, more expensive drugs all play a part in increasing drug spending.

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