Market watch: Riding the rollercoaster: The ups and downs in out-of-pocket spending under the standard Medicare drug benefit

Health Affairs

Volumn 24, Issue 4, 2005, Pages 1022-1031

  Stuart, Bruce ^a   Briesacher, Becky A ^b   Shea, Dennis G ^c   Cooper, Barbara ^d   Baysac, Fatima S ^e   Limcangco, M Rhona ^f  

^a UNIVERSITY OF MARYLAND SCHOOL OF PHARMACY   (United States)

^b UNIVERSITY OF MASSACHUSETTS MEDICAL SCHOOL   (United States)

^c PENNSYLVANIA STATE UNIVERSITY   (United States)

^d Program on Medicare's Future   (United States)

^e UNIVERSITY OF MARYLAND   (United States)

^f AGENCY FOR HEALTHCARE RESEARCH AND QUALITY   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

AGED; ARTICLE; CHRONIC DISEASE; COMPARATIVE STUDY; ECONOMICS; FEMALE; FINANCIAL MANAGEMENT; HEALTH CARE COST; HEALTH INSURANCE; HEALTH MAINTENANCE ORGANIZATION; HUMAN; LEGAL ASPECT; MALE; MARRIAGE; MEDICARE; POVERTY; STATISTICAL ANALYSIS; STATISTICS; UNITED STATES; UTILIZATION REVIEW;

ACTUARIAL ANALYSIS; AGED; AGED, 80 AND OVER; CHRONIC DISEASE; FEMALE; FINANCING, PERSONAL; HEALTH EXPENDITURES; HEALTH MAINTENANCE ORGANIZATIONS; HUMANS; INSURANCE, PHARMACEUTICAL SERVICES; MALE; MARITAL STATUS; MEDICARE; POVERTY; UNITED STATES;

EID: 23044456943     PISSN: 02782715     EISSN: None     Source Type: Journal    
DOI: 10.1377/hlthaff.24.4.1022     Document Type: Article

References (25)

1. J. Mays et al., Estimates of Medicare Beneficiaries' Out-of-Pocket Drug Spending in 2006: Modeling the Impact of the MMA (Menlo Park, Calif.: Henry J. Kaiser Family Foundation, November 2004).
2. A pharmacy validation study conducted by the CMS indicates that prescription drug spending reported in the MCBS is underreported by 17 percent. See J.A. Poisal, "Reporting of Drug Expenditures in the MCBS," Health Care Financing Review 25, no. 2 (2003): 23-36.
3. Centers for Medicare and Medicaid Services, "Table 11: Prescription Drug Expenditures; Aggregate and Per Capita Amounts, Percent Distribution, and Average Annual Percent Change by Source of Funds: Selected Calendar Years 1990-2013," 17 September 2004, www.cms.hhs.gov/statistics/nhe/projections- 2003/tll.asp (18 April 2005). We began by inflating beneficiaries' reported drug spending in each baseline year by 17 percent to reflect underreporting (see Note 2). We then took NFIA estimates for each pair of years (for example, $317 in 1998 and $884 in 2006) to determine the unadjusted increase in percentage terms (279 percent). Because changes in drug spending for the overall population may differ from changes specific to the Medicare population, we then adjusted the NHA projections by an estimate of the historical difference in per capita spending trends in the MCBS compared with the NHA from 1993 to 2000. We performed a second adjustment to remove the portion of NHA projected spending increase associated with demand inducement due to improved drug coverage. There is no evidence of any increase in drug coverage among Medicare beneficiaries after 2000, nor is any improvement expected until Part D coverage begins in 2006. A final adjustment accounted for the fact that not all segments of the Medicare population can be expected to increase drug spending at the same rate. Our analysis of MCBS trend data indicates that per capita increases in drug spending from 1993 to 2000 followed a U-shaped pattern, with higher spending growth at the top and bottom of the income distribution. To adjust for this, we estimated how much spending increased by each income category as a percentage of the overall spending growth in the MCBS over this period. These ratios were multiplied by the base inflation factor to create income-adjusted inflation factors for 2006-2008. We then multiplied each sample beneficiary's actual drug spending in 1998, 1999, and 2000 by the appropriate adjusted inflation factor to produce the spending projections.
4. B. Stuart et al., "Patterns of Outpatient Prescription Drug Use among Pennsylvania Elderly," Health Care Financing Review 12, no. 3 (1991): 61-72;
5. N.E. Coulson and B. Stuart, "Persistence in the Use of Pharmaceuticals by the Elderly: Evidence from Annual Claims," Journal of Health Economics 11, no. 3 (1992): 315-328;
6. and M.V. Wrobel et al., "Predictability of Prescription Drug Expenditures for Medicare Beneficiaries," Health Care Financing Review 25, no. 2 (2003): 37-46.
7. Were the basic benefit thresholds to remain the same from year to year, we estimated that 85 percent of high spenders in 2006 would remain in the doughnut hole in 2007 and 2008 (as opposed to the 82 percent reported in Exhibit 4). Likewise, were the catastrophic threshold held constant at 2006 levels, we estimated that 69 percent of catastrophic spenders would exceed the threshold in 2007 (rather than 65 percent), and 63 percent would still exceed it in 2008 (as opposed to the 53 percent shown in the exhibit).
8. U.S. Census Bureau, "Current Population Reports," in Statistical Abstract of the United States: 2003, Table no. 685, www.census.gov/prod/2004pubs/03statab/income.pdf (15 May 2004).
9. According to MCBS data, beneficiaries' mean annual income grew 3.8 percent per year from 1993 through 2000. Assuming that this growth rate persists, we projected that the median income of aged households will reach $27,857 in 2006, $28,916 in 2007, and $30,014 in 2008.
10. In the parlance of MMA, off-formulary purchases by beneficiaries do not count as true out-of-pocket costs.
11. C. Roe, A. McNamara, and B. Motheral, "Use of Chronic Medications among a Large, Commercially-Insured U.S. Population," Pharmacoepidemiology and Drug Safety 11, no. 4 (2002): 301-309.
12. See, for example, M.V. Pauly, "Medicare Drug Coverage and Moral Hazard," Health Affairs 23, no. 1 (2004): 113-122;
13. L.A. Lillard, J. Rogowski, and R. Kington, "Insurance Coverage for Prescription Drugs: Effects on Use and Expenditures in the Medicare Population," Medical Care 37, no. 9 (1999): 926-936;
14. and J. Blustein, "Drug Coverage and Drug Purchases by Medicare Beneficiaries with Hypertension," Health Affairs 19, no. 2 (2000): 219-230.
15. E.R. Cox et al., "Medicare Beneficiaries' Management of Capped Prescription Benefits," Medical Care 39, no. 3 (2001): 296-301.
16. C.W. Tseng et al., "Cost-Lowering Strategies Used by Medicare Beneficiaries Who Exceed Drug Benefit Caps and Have a Gap in Coverage," Journal of the American Medical Association 292, no. 8 (2004): 952-960.
17. Congressional Budget Office, Letter to the Honorable Don Nickles providing "additional information about CBO's cost estimate for the conference agreement on H.R. 1," 20 November 2003, www.cbo.gov/showdoc.cfm? index=4814&sequence=0 (18 April 2005).
18. Mays et al., Estimates.
19. The typical MA policy has an annual benefit cap of less than a $1,000. See CMS, "Medicare+Choice: Policy Concerns, Implications, and Prescription for Change," 16 September 2004, www.cms.hhs.gov/ healthplans/benpkg/mc00anal.asp (18 April 2005).
20. CBO letter to Don Nickles; and R. Pear, "Medicare Law Is Seen Leading to Cuts in Drug Benefits for Retirees," New York Times, 14 July 2004.
21. There is, of course, greater risk over the long run as even healthy beneficiaries face the prospect of deteriorating health status and growing need for pharmaceutical therapy.
22. See J. Nyman, The Theory of Demand for Health Insurance (Stanford, Calif.: Stanford University Press, 2003).
23. It is worth noting that high spenders also have above-average incomes, which might justify some of the differential in out-of-pocket payments between low and high spenders.
24. The CMS has recently signaled that it will permit MA plans to use any Medicare rebates they receive for providing low-cost medical benefits to fill in the doughnut hole without risk of losing reinsurance payments. However, this riding affects MA plans and not those offering only drug benefits. See "CMS: MA Plans Can Fill Drug Benefit Gap with Rebates from Low Bids," Inside CMS 8, no. 4 (2005): 1-6.
25. T. Docksum and A. Hassol, Evaluation of the Medicare-Approved Prescription Drug Discount Card and Transitional Assistance Program, Final Report to CMS by Abt Associates (Washington: Abt Associates, 1 December 2004).