The Effect of Insurance on the Demand for Prescription Drugs by the Elderly and Near-Elderly
- Presenter:
Chair: Marisa Domino Mon June 5, 2006 10:45-12:15 Room 121
Rationale: Many people under age 65 have drug coverage through private group health insurance plans or Medicaid. Medicare beneficiaries are less likely to have drug coverage, and some obtain coverage through less generous, individually-purchased private plans. Medicare begins covering outpatient prescription drugs in 2006, when Medicare Part D becomes effective. The institution of Part D will increase access to drugs for some beneficiaries, but some beneficiaries may lose more generous drug coverage as some employer-sponsored retiree health plans discontinue coverage.
Objectives: To provide insight into the possible effects of Medicare Part D, this paper examines how prescription drug expenditures for the elderly and near elderly (those aged 55 to 64) are affected by different types of prescription drug coverage. We include the near-elderly because they will soon become Medicare beneficiaries, and policymakers are also interested in their demand for drugs.
Methods: We examine the effects of drug coverage on drug expenditures for elderly and near-elderly with econometric models estimated with data from the Medical Expenditure Panel Survey (MEPS), a nationally-representative database of the civilian non-institutionalized population in the U.S. Our models control for a wide variety of observed characteristics that differ across insurance groups, such as income, age, gender, race/ethnicity, education and health status. We distinguish between those with relatively generous drug coverage from Medicaid, employer-sponsored plans and Medicare HMOs, those with less generous coverage from individually-purchased plans, and those who have no coverage because they are uninsured or are covered only by Medicare (before 2006). We use two approaches to correct for the endogeneity of insurance status. First, we control for an important source of omitted variables bias by including variables that measure individuals’ attitudes toward risk and health care. Second, we develop several instruments for insurance coverage, such as Medicare HMO penetration rates, various measures of assets, and Food Stamp eligibility. We also use a therapeutic classification scheme to examine the demand for a few large classes of drugs of policy interest, such as statins. Although other studies have examined these issues, none have included the near-elderly in their analysis, used MEPS data, or included variables that measure individuals’ attitudes toward risk.
Preliminary Findings: At a point in time, approximately 70 percent of the near-elderly have prescription drug coverage through a private group health insurance plan or Medicaid. In contrast, approximately one-third of Medicare enrollees have prescription drug coverage through these relatively generous sources. From 1996 to 2002, the average prescription drug expenditure for the near-elderly increased from approximately $590 to $1,215 in constant 2002 dollars. During this same period, prescription drug expenditures increased from approximately $795 to $1,507 for Medicare enrollees.
