Report to the President: Prescription Drug Coverage, Spending, Utilization, and Prices.. Moral Hazard and Barriers to Access

04/01/2000

The RAND Health Insurance Experiment of the late 1970’s and early 1980’s found that even in the absence of adverse selection, insurance can lead to higher rates of use.18 In the experiment, higher cost-sharing deterred people from obtaining both necessary and unnecessary care.19 Several studies focusing on drug use by Medicare beneficiaries reach the same basic conclusion — drug coverage increases the probability of drug use. The empirical estimates of insurance effects produced by the studies vary within a relatively narrow range. The addition of drug coverage is estimated to increase the probability of any prescription being filled by between 4 and 16 percent, depending on population subgroup and generosity of drug coverage.20 In a study of Pennsylvania elderly, prescription coverage increased drug use by approximately 3 percent for every 10 percent reduction in out-of-pocket cost to beneficiaries, all else being equal.21

It is difficult to separate whether these effects are due to higher demand by people with coverage, or lack of access for people without coverage. If two people have similar characteristics, and the one with coverage receives more drugs than the one without coverage, is this because the one with coverage is receiving the appropriate drugs and the one without coverage is not? Or is it because the person with coverage is encouraged to receive excessive or unnecessary treatments and the one without coverage is thriftily purchasing only the care he or she needs? Both answers could be correct. Many people without coverage report difficulty in obtaining needed medications; data on the extent of this problem will be presented in the next section of this chapter. At the same time, however, studies have shown that some elderly people receive inappropriate drugs or inappropriately large dosages, with potential adverse effects.22

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