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The Costs of A Medicare Prescription Drug Benefit


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  • Goldman Dana P


  • Joyce Geoffrey F


  • Malkin Jesse Dylan


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    Medicare does not have an outpatient prescription drug benefit. Recently, there has been renewed interest in adding a prescription drug benefit to the program. In this paper, we present a microsimulation model to predict drug expenditures in 2001 for a representative cohort of Medicare beneficiaries under the status quo and three different plans: (1) a catastrophic plan modeled on the Medicare Catastrophic Coverage Act (PL 100-360), which was passed in 1988 but repealed one year later after higher-income Medicare beneficiaries protested new premiums, (2) a zero-deductible plan that caps out-of-pocket expenses at $4,000 per year, and (3) a zero-deductible plan that does not cap out-of-pocket expenses. We use data from a representative sample of Medicare Part B beneficiaries from the 1995 Medicare Current Beneficiary Survey (MCBS) Cost and Use file. Under the status quo, drug expenses average $1,459 per beneficiary, out-of-pocket costs average $646, and 8.2% of the population has very high expenses (defined as more than $2,000 out-of-pocket for drugs). Under a catastrophic plan, average annual drug expenses are $1,344, out-of-pocket costs are $645, and 6.8% of beneficiaries have very high expenses. Under a zero-deductible plan that does not cap out-of-pocket expenses average annual drug expenses are $1,395, out-of-pocket expenses are $459, and 5.3% of beneficiaries would have very high expenses. Under a zero-deductible plan that caps out-of-pocket expenses at $4,000 per year, average annual drug expenses are $1,414, out-of-pocket expenses are $442, and 5.5% of beneficiaries have very high expenses.

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    Bibliographic Info

    Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

    Volume (Year): 2 (2002)
    Issue (Month): 1 (April)
    Pages: 1-18

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    Handle: RePEc:bpj:bejeap:v:topics.2:y:2002:i:1:n:3

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    Cited by:
    1. Melissa Boyle, 2008. "Costs and Benefits of Elderly Prescription Drug Coverage: Evidence from Veterans’ Health Care," Working Papers 0803, College of the Holy Cross, Department of Economics.
    2. Dahlia K. Remler & Joshua Graff Zivin & Sherry A. Glied, 2004. "Modeling health insurance expansions: Effects of alternate approaches," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 23(2), pages 291-313.


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