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MARCH 27, 2001

Chairman Johnson, Congressman Stark, distinguished Committee members, thank you for inviting me here today to discuss an analysis of data on prescription drug use and spending patterns of Medicare beneficiaries recently published in Health Affairs, "Growing Differences Between Medicare Beneficiaries With and Without Drug Coverage, Volume 20, Number 2. Prescription drugs provide a vital tool for our nation's young and old in treating both chronic and acute medical conditions. In 1998, total spending for prescription drugs in the United States totaled $91 billion, more than double the total 10 years ago.

The research, as presented in the article, is based on data collected by the Health Care Financing Administration through the Medicare Current Beneficiary Survey (MCBS) from 1998, as well as survey data collected in prior years. The MCBS is an ongoing survey of a representative sample of the entire Medicare population. Survey respondents are interviewed every four months and are asked to record their drug purchases and save their medicine containers to assist them in recalling their drug purchases.

The research resulted in two main findings regarding drug coverage among the Medicare beneficiary population. First, the proportion of Medicare beneficiaries with prescription drug coverage at some point in the year did not change between 1997 and 1998, after having increased annually over a number of years. Second, the differences in the levels of use of prescription drugs and total spending on prescription drugs, in 1998, widened between beneficiaries with drug coverage and those without.


Since Medicare currently provides very limited coverage of outpatient prescription drugs, Medicare beneficiaries obtain coverage from a variety of sources. For example, many beneficiaries receive coverage through Medigap plans, their employer-sponsored retiree insurance plan, as well as through enrollment in Medicare HMOs, the Medicaid program, or State-sponsored prescription drug assistance programs. The MCBS collects information on the number of Medicare beneficiaries with prescription drug coverage and the sources of that coverage.

Since 1992, the first year of the MCBS, the data have shown that the prescription drug coverage rate for Medicare beneficiaries has risen steadily. From 1995 to 1997, the level of estimated drug coverage increased, but in 1998 coverage levels remained flat. As indicated in Chart 1, in 1998, 73 percent of non-institutionalized Medicare beneficiaries had drug coverage at some point during the year. On the other hand, slightly more than 27 percent of beneficiaries, about 10 million, had no drug coverage whatsoever. These findings are identical to what was found in the 1997 survey data.

The increase in the proportion of beneficiaries with drug coverage in the mid-1990s appears to most likely be a result of increased beneficiary enrollment in Medicare HMOs offering an additional drug benefit (Chart 2). During the mid- to late 1990s, Medicare HMO enrollment was growing at about 30 percent annually. The provision of drug benefits by Medicare HMOs during this period, as well as the increase in beneficiary enrollment resulted in more than 15 percent of all Medicare beneficiaries receiving drug coverage from a Medicare HMO in 1998, an increase of 2 percent since 1997, and of 7 percent since 1995.

Although a fairly high proportion of Medicare beneficiaries had some type of supplemental prescription drug coverage in the 1990s, a month-by-month analysis of the data revealed that this coverage was far from stable. For instance, only 46 percent of beneficiaries were covered for all 24 months of 1995 and 1996. In 1997, only 54 percent of beneficiaries had drug coverage for the entire year, and 27 percent had no coverage at any time (Chart 3)


The trends in use and spending for beneficiaries with and without prescription drug coverage differed for the first time in 1998. The 1998 data showed that beneficiaries without drug coverage purchased fewer medications than they purchased the year before, filling an average of 16.7 prescriptions, a 2.4 percent decline from 1997. At the same time, those same beneficiaries spent an average of about $550 on their prescription purchases, nearly identical to their expenditures the previous year.

Beneficiaries with coverage continued the trend of increases in both utilization and total expenditures. They purchased a little more than 24 prescriptions per person, up 9 percent from 1997, and total expenditures, including out-of-pocket and payments from drug insurance coverage, increased 14 percent, totaling $999. The gap in utilization between the two populations grew from an average difference of 5 prescriptions in 1997 to 8 in 1998. The difference in total expenditures between the two populations also increased from about $330 in 1997 to $453 in 1998. In addition, the survey data have been consistent in demonstrating gaps in utilization between beneficiaries in both populations for almost every demographic category including age, race, health status, and income.

These differences in utilization and expenditures were particularly notable in certain sub-groups. The differences were greatest for disabled beneficiaries under age 65, a group that has a high level of drug use. Disabled beneficiaries under age 65 without drug coverage used less than one-half as many prescriptions (16 prescriptions), as disabled beneficiaries with coverage used (33 prescriptions). In addition, total drug expenditures for disabled beneficiaries without drug coverage were only one-third as high ($493) in per capita spending as disabled beneficiaries with drug coverage ($1483).

Utilization differences between beneficiaries, with or without drug coverage, with varying levels of chronic conditions also increased in 1998, by approximately two prescriptions per beneficiary. For example, the utilization gap between beneficiaries, with or without coverage, who had five or more chronic conditions, grew from eight prescriptions in 1997 to 10.8 in 1998. Differences in total expenditures for beneficiaries with and without drug coverage also increased by about 70 percent for beneficiaries with five or more chronic conditions and by approximately 30 percent for all other beneficiaries with chronic conditions.

In 1998, total drug expenditures for beneficiaries in poor health with drug coverage were $910 higher than total expenditures for beneficiaries in poor health without drug coverage. This represented a 30 percent increase over the 1997 difference of $695. Average drug expenditures for beneficiaries in excellent health were $250 higher for those with coverage than for beneficiaries with identical self-reported health status who were without coverage. In 1997, the difference in expenditures between these two groups was $203.

Utilization and total expenditures, for all levels of income, were higher for beneficiaries with drug coverage than for those without such coverage. Differences in utilization and total expenditures were greatest between beneficiaries with and without drug coverage below the poverty line and reached a difference of almost 14 prescriptions per beneficiary in 1998.

Beneficiaries without drug coverage spent more out-of-pocket, than those with coverage, but continued to receive fewer medications. Beneficiaries without drug coverage had to pay an average of $546 out-of-pocket in 1998, compared to $325 for beneficiaries with coverage. In other words, beneficiaries without drug coverage paid an average of $33 per prescription compared to $13 for beneficiaries with drug coverage (Chart 4).

For beneficiaries without drug coverage, out-of-pocket expenditures, which are equal to their total expenditures, were virtually unchanged from 1997 to 1998, while out-of-pocket and total expenditures for beneficiaries with drug coverage increased by almost 18 percent. Moreover, beneficiaries with drug coverage paid a slightly larger portion of their total drug expenditures (33 percent) in 1998 than they did in 1997 (31 percent). Beneficiaries in Medicare HMOs with drug coverage and those enrolled in individually purchased supplemental plans experienced the greatest out-of-pocket cost increases between 1997 and 1998.


Prescription drugs continue to play an increasingly important role in the health care of Medicare beneficiaries. The research presented in the Health Affairs article demonstrates that beneficiaries with drug coverage used more drugs and had higher total expenditures than beneficiaries without coverage, and the gap in expenditures and utilization between those with and without coverage increased. Clearly, having prescription drug coverage makes a difference in beneficiary drug use and spending, particularly for low-income seniors and those with many chronic health problems.

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Last revised: February 12, 2002