Report to the President: Prescription Drug Coverage, Spending, Utilization, and Prices.. Source of Coverage

04/01/2000

Table 2-4 and Figure 2-5 show that utilization and spending by Medicare beneficiaries varies according to their primary source of supplemental coverage.5 The gaps between beneficiaries with and without drug coverage also vary.

Table 2-4. Average Number of Prescriptions, Total Spending, and Out-of-pocket Spending for Prescription Drugs by Medicare Beneficiaries with and without Drug Coverage, by Primary Source of Supplemental Coverage, 1996
Source of coverage Covered Not covered Ratio, covered/not covered
Average number of prescriptions Average total spending Average out-of-pocket spending Out-of-pocket as % of total spending Average number of prescriptions Average total spending (all out-of-pocket) Average number of prescriptions Average total spending Average out-of-pocket spending
                   
TOTAL 21.14 $768.90 $252.65 33% 16.01 $463.15 1.32 1.66 0.55
                   
Risk HMO 17.43 $573.02 $188.90 33% * $151.33 * 3.79 1.25
Medicaid 28.50 $882.13 $177.57 20% 14.95 $380.05 1.91 2.32 0.47
Employer Sponsored 19.07 $805.89 $238.72 30% 17.42 $530.03 1.10 1.52 0.45
Individually Purchased 20.78 $711.28 $416.41 58% 17.61 $524.70 1.18 1.36 0.79
Other 27.43

$790.96

$292.71 37% 17.87 $543.66 1.53 1.45 0.54
Medicare Only         12.39 $326.65      

* Sample size is too small to produce a reliable estimate.

Source: Information and Methods Group, Office of Strategic Planning, Health Care Financing Administration(now known as Centers for Medicare and Medicaid Services(CMS)): Medicare Current Beneficiary Survey Cost and Use File, 1996.

Among beneficiaries with drug coverage, both total spending and the proportion that beneficiaries pay out-of-pocket vary by type of insurance. Beneficiaries who have individually purchased (mostly Medigap) insurance pay a higher proportion of their drug costs than any other covered group and have relatively low total spending compared to other coverage groups. Beneficiaries enrolled in Medicaid who have drug coverage have the highest utilization and spending and the lowest out-of-pocket costs of any covered group.6


Figure 2-5. Out-of-pocket and Insurer Spending on Prescription Drugs by Medicare Beneficiaries, by Type of Drug Coverage, 1996

Figure 2-5. Out-of-pocket and Insurer Spending on Prescription Drugs by Medicare Beneficiaries, by Type of Drug Coverage, 1996

Source: Information and Methods Group, Office of Strategic Planning, Health Care Financing Administration(now known as Centers for Medicare and Medicaid Services(CMS)): Medicare Current Beneficiary Survey Cost and Use File, 1996.


With few exceptions, Medicare beneficiaries with drug coverage had more prescriptions, higher spending, and lower out-of-pocket costs than those without drug coverage as a whole and within each coverage group.7

  • The spending differences between Medicaid beneficiaries with and without drug coverage are dramatic. Beneficiaries who have Medicaid with drug coverage get nearly twice as many prescriptions and spend over twice as much on drugs as beneficiaries who receive Medicaid assistance only with cost sharing or premiums. Very low-income people who lack drug coverage may be least likely to be able to purchase needed medications on their own.
  • Beneficiaries with employer-sponsored supplemental insurance show the smallest utilization difference between those with and without a drug benefit; the difference in the number of prescriptions per person is not statistically significant. The difference in total spending is much larger, because prescriptions received by those with a drug benefit were 39 percent more costly than those received by retirees without a drug benefit. Despite their higher total spending, those with drug coverage had out-of-pockeBeneficiaries with employer-sponsored supplemental insurance show the smallest u
  • The utilization difference for people with individually purchased coverage with and without a drug benefit is also quite small. In contrast to those with employer-sponsored insurance, however, those with drug coverage spend nearly as much out of pocket (almost 80 percent as much) as those without it. This is partly due to the deductible and cost-sharing requirements imposed by standard Medigap plans. On average, beneficiaries with a drug benefit and Medigap pay 58 percent of their costs out of pocket.

There are also notable differences among beneficiaries without drug coverage based on whether they had other supplemental coverage. With the exception of beneficiaries in HMOs, people with no drug coverage but some supplemental coverage had higher spending than people who had only Medicare coverage. One possible explanation is that people with no supplement are healthier than people who choose to obtain some form of supplemental coverage. Another possible factor is that beneficiaries without a supplement were less likely to see a physician, and hence less likely to receive a prescription. The issues of self-selection, moral hazard, and lack of access will be considered further below.

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