Report to the President: Prescription Drug Coverage, Spending, Utilization, and Prices.. Out-of-pocket Drug Spending and Other Health Spending

04/01/2000

Spending for drugs is a substantial component of total out-of-pocket health spending for all ages and income levels. The following tables and charts were prepared using the Consumer Expenditure Survey (CEX) data prepared by the Bureau of Labor Statistics. This analysis differs in several respects from others reported in this chapter. Expenditures are for the consumer unit (basically a family or unrelated individuals who share living expenses) rather than the individual. Consumer units are grouped here according to age of the reference person.24 A unit with an elderly reference person may contain non-elderly individuals, and vice versa.

Table 2-25 shows the average breakdown of spending by consumer units in 1997-98. Spending for non-health necessities -- defined here as food, shelter, utilities, transportation, and clothing -- makes up a majority of total spending for all ages and income groups.25 Out-of-pocket health spending, including insurance premiums as well as out-of-pocket payments for drugs and other medical services and supplies, is an important component of discretionary spending (spending other than for non-health necessities) for all ages and incomes. Payments for over-the-counter drugs are included in the total for out-of-pocket health spending. As in the rest of this chapter, they are not included in spending on prescription drugs.

Table 2-25. Components of Average Consumer Unit Spending, by Income and Age of Reference Person, 1997-19981
Average expenditures per consumer unit Consumer units whose reference person is:
Under age 65 Age 65 or over
All incomes Income <$15,0002 Income >$40,0002* All incomes Income <$15,0002 Income >$40,0002 *
             
Total expenditures $37,306 $16,746 $53,740 $25,598 $15,999 $51,377
             
Spending for non-health necessities $23,602 $12,184 $32,247 $15,032 $9,986 $27,573
Discretionary spending (including health)3 $13,704 $4,562 $21,493 $10,566 $6,013 $23,804
Health spending4 $1,499 $703 $2,045 $2,993 $2,178 $4,210
Prescription drug spending $154 $117 $173 $516 $438 $502
             
Drugs as % of all spending 0.4% 0.7% 0.3% 2.0% 2.7% 1.0%
Drugs as % of discretionary 1.1% 2.6% 0.8% 3.8% 5.3% 1.8%
Drugs as % of health 10.2% 16.6% 8.5% 17.2% 20.1% 11.9%

* The statistics in this income group are less reliable than for other series, due to a lower sample size.

1Estimates of single-year prescription drug expenditures are unpublished data that do not meet the reliability standards of published estimates. Therefore, data are presented as averages of two years to generate sufficient sample size needed to make the prescription drug estimates meet the Bureau of Labor Statistics’ reliability standards.

2All income ranges are before taxes.

3Health spending is included with discretionary spending because spending for health is frequently forgone by low income households.

4Out-of-pocket health care spending includes out of pocket insurance payments, prescription and nonprescription drug expenses, and payments for all other medical services and supplies.

Source: Consumer Expenditure Survey data from the Bureau of Labor Statistics as analyzed by the Office of the Actuary, HCFA(now known as CMS).

As Figure 2-12 shows, out-of-pocket spending for prescription drugs is a larger proportion of health spending for units with an elderly reference person than for units with a younger reference person.26 Prescription drug spending also accounts for a larger share for people with low incomes than for people with higher incomes. For the lower income units with an elderly reference person, spending for drugs accounted for 20 percent of health spending, and 5 percent of all discretionary spending.


Figure 2-12. Out-of-pocket Prescription Drug Spending as a Proportion of Health Spending, by Age and Income, 1997-1998

Note: Expenditures are for the consumer unit and shown by the age of the reference person (see text).

Source: Office of the Actuary, Health Care Financing Administration(now known as Centers for Medicare and Medicaid Services(CMS)): Bureau of Labor Statistics Consumer Expenditure Survey, 1997-1998


Because the CEX information on drug coverage is not definitive, this analysis is not able to compare spending by those with coverage to those without coverage. However, this chapter showed earlier for Medicare beneficiaries that as a percentage of income, drug spending for those without coverage was double the spending of those with coverage (see Table 2-19). This implies that for uncovered beneficiaries, an even larger proportion of spending goes to prescription drugs than is shown here.

Table 2-26 shows changes in the components of spending for units with an elderly reference person between 1992-93 and 1997-98. Out-of-pocket spending for drugs rose much more rapidly than out-of-pocket health spending. This was particularly true for low income families. In dollar terms, out-of-pocket drug spending for higher-income units increased more than for lower-income units. As a share of health spending, however, the increase was much greater for the lowest-income units: increased spending for drugs accounted for 92 percent of the total increase in health spending during the period. As a result, drugs as a share of health spending rose from 16.3 percent to 17.2 percent for all consumer units with an elderly reference person, and from 17.6 percent to 20.1 percent for the subset of these units with the lowest incomes.

Table 2-26. Change in Components of Average Consumer Unit Spending for Units with a Reference Person Age 65 or Older, 1992-1993 to 1997-19981
Average expenditures Per consumer unit All income groups Income <$15,000 before taxes
1992-93 1997-98 % change 1992-93 1997-98 % change
             
Total expenditures $21,214 $25,598 20.7% $14,054 $15,999 13.8%
             
Spending for non-health necessities $12,520 $15,032 20.1% $8,760 $9,986 14.0%
Discretionary spending (including health)2 $8,694 $10,566 21.5% $5,294 $6,013 13.6%
Health spending3 $2,644 $2,993 13.2% $2,106 $2,178 3.4%
Prescription drug spending $432 $516 19.4% $372 $438 17.9%
             
Drugs as % of all spending 2.0% 2.0%   2.6% 2.7%  
Drugs as % of discretionary 5.0% 4.9%   7.0% 7.3%  
Drugs as % of health 16.3% 17.2%   17.6% 20.1%  

1Estimates of single-year prescription drug expenditures are unpublished data that do not meet the reliability standards of published estimates. Therefore, data are presented as averages of two years to generate sufficient sample size needed to make the prescription drug estimates meet the Bureau of Labor Statistics’ reliability standards.

2Health spending is included with discretionary spending because spending for health is frequently forgone by low income households.

3Out-of-pocket health care spending includes out of pocket insurance payments, prescription and nonprescription drug expenses, and payments for all other medical services and supplies.

Source: Consumer Expenditure Survey data from the Bureau of Labor Statistics as analyzed by the Office of the Actuary, HCFA(now known as CMS).

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