Powerpoint presentation

Prescription Drug Coverage and Drug Utilization:
Evidence from the Medicare Part D Expansion
Prescription Drug Coverage and Drug Utilization
Background
• Optimal design of prescription drug insurance involves a tradeoff » Financial and health benefits of insurance versus » Costs of insurance from moral hazard » Better consumption smoothing » Relaxation of financial constraints • Impede the ability of households to adequately self-insure Prescription Drug Coverage and Drug Utilization
Background
• An important benefit identified in the health literature is reduction in cost-related non-adherence to Rx regimens • Seen to have important impacts on health• These are in addition to » Direct benefits of Rx on health maintenance» Direct health benefits from fewer side effects Prescription Drug Coverage and Drug Utilization
Background
• Moral hazard is the excess utilization of drugs » Insured consumers do not bear the full costs of drugs • Seen a primary social cost of providing insurance if drug prices reflect true marginal cost of production Prescription Drug Coverage and Drug Utilization
Background
• A key empirical question then is what happens to Rx utilization » How much does it increase?» How much is associated with the relaxation of financial constraints, such as cost-related non-adherence Prescription Drug Coverage and Drug Utilization
Background
• There are two important empirical challenges in analyzing the • Unobserved heterogeneity in the demand for prescription drugs may bias estimates of of the impact of coverage on utilization » Those with high demand for Rx may also be more likely to have Prescription Drug Coverage and Drug Utilization
Background
• Difficult to separately identify the impact of the relaxation of • For example, an estimated small impact: » Does it show small moral hazard?» Or insurance that is ineffective in relaxing financial constraints? Prescription Drug Coverage and Drug Utilization
Data and Methods
• Use panel data on elderly (65+) • From 2005 and 2007 waves of the Prescription Drug Study (PDS)• Supplement to the Health and Retirement Study (HRS)• Examine the impact of gaining Rx insurance coverage on Rx Prescription Drug Coverage and Drug Utilization
Data and Methods
• Use evidence from increases in coverage among the elderly from the expansion of Medicare Part D benefits in 2006 • PDS provides data before (2005) and after (2006) the roll out of Prescription Drug Coverage and Drug Utilization
Data and Methods
• Part D started in 2006 and available to 3 groups » Medicare beneficiaries 65 and older (voluntary)» Medicare-eligible DI beneficiaries under 65 (voluntary)» Medicaid-Medicare dual eligibles (automatically enrolled) Prescription Drug Coverage and Drug Utilization
Data and Methods
• Available directly through 2 types of plans » Stand-alone prescription drug plans (PDPs)» Medicare Advantage (MA) plans, • Packaged with other Medicare benefits in an HMO, PPO, or • Subsidies to employers and unions to retain existing coverage Prescription Drug Coverage and Drug Utilization
Data and Methods
• PDS comes in 2 parts• Questionnaire—gathers detailed information on » Sources of Rx coverage» General questions on utilization on • Extensive margin (whether take Rx)• Intensive margin—how many › In last month in total› In last month, taken regularly Prescription Drug Coverage and Drug Utilization
Data and Methods
• Questionnaire—gathers detailed information on • “How often did you not fill a new prescription because of • “How often did you stop taking a prescription medication • “How often did you skip doses of a prescription medication Prescription Drug Coverage and Drug Utilization
Data and Methods
• Roster of medications—gathers detailed information for labels on the 10 most important medicines taken regularly » Drug name (Simvastatin)» Brand or trade name, if any (Zocor)» Dosage (20 mg)» Frequency (Take 1 tablet each day)» Length of time taking the medication Prescription Drug Coverage and Drug Utilization
Data and Methods
• Drug-specific information on non-adherence due to » Importance to overall health» Frequency of unpleasant side effects» Expense Prescription Drug Coverage and Drug Utilization
Data and Methods
» Use panel data fixed-effect estimators • consistent estimates of the impact of coverage on utilization • in the presence of time-invariant unobserved heterogeneity » Use non-adherence questions to separately estimate impact of • utilization (in general) • cost-related non-adherence Prescription Drug Coverage and Drug Utilization
Data and Methods
• Sample of 4,456 person-year observations on 2,228 individuals 65 • Sample is broadly similar to that of all elderly in the HRS » Slightly more like to be married» Slightly more likely to have Rx coverage in 2005 Prescription Drug Coverage and Drug Utilization
Summary of Findings
• Part D associated with a substantial increase in Rx coverage from public sources and decrease from private sources • The fixed-effect estimates suggest crowd-out of 73% • Overall, the expansion of Part D raised Rx coverage for the elderly • These results are remarkably consistent with the findings of Engelhardt and Gruber (2011), based on the MEPS Prescription Drug Coverage and Drug Utilization
Summary of Findings
• This temporal increase in coverage then is used to identify the • In particular, the fixed-effect estimates indicate that gaining coverage results in a 15% increase in utilization, as measured by the number of prescription drugs taken. • These results are consistent with the lower end of estimates in the Prescription Drug Coverage and Drug Utilization
Summary of Findings
• Gaining coverage is associated with large reductions (20-50%) in the incidence of cost-related non-adherence • However, using drug-level data from the medication roster, even among the uninsured, only a relatively small proportion of drugs (12%) are associated with episodes of cost-related non-adherence • So, these large reductions apply to a small slice of all drugs • So, what explains the rest of the increase in utilization? Prescription Drug Coverage and Drug Utilization
Summary of Findings
• A few pieces of evidence point to moral hazard, both qualitative » With coverage, drugs are seen as much less expensive » New prescriptions less important to health» New prescriptions are not differentially less likely to be associated with episodes of non-adherence • Impact on non-adherence concentrated on old drugs Prescription Drug Coverage and Drug Utilization
Summary of Findings
• So, gaining coverage is associated with » consumption of more drugs, » On net seen as less expensive » Less important to health» and not better adhered to • Certainly not inconsistent with moral hazard Prescription Drug Coverage and Drug Utilization
Summary of Findings
• Finally, although quite speculative, the estimates on utilization and non-adherence can be taken together to form a rough lower bound estimate of moral hazard in utilization from prescription drug coverage. » Of the overall 15% increase in utilization, about one-third can Prescription Drug Coverage and Drug Utilization
Caveats and Further Directions
• Conclusions on extent of moral hazard are speculative• Moral hazard here measured as total change in utilization• Technically only due to the substitution effect (the pure price effect • No attempt to estimate this more precisely• Moral hazard usually seen as bad » Could be good if price exceeds marginal cost» Patent protection for pharmaceuticals

Source: http://crr.bc.edu/wp-content/uploads/2011/08/3_Engelhardt1.pdf