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Medicare Part D's Effects on Elderly Drug Costs and Utilization

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  • Jonathan D. Ketcham
  • Kosali Simon

Abstract

We analyze Medicare Part D's net effect on elderly out-of-pocket (OOP) costs and use of prescription drugs using a dataset containing 1.4 billion prescription records from Wolters Kluwer Health (WKH). These data span the period December 2004-December 2007 and include pharmacy customers whose age as of 2007 is greater than 57 years. The outcomes we examine are OOP cost per day's supply of a medication, the days of medication supplied per capita, and the number of individuals filling prescriptions. We compare outcomes before vs. after January 2006, for those over age 66 years vs. for those age 58-64 years, adjusting for the under-reporting of certain cash-only transactions in the WKH data. Our results indicate that from 2005-2007, Part D reduced elderly OOP costs per day's supply of medication by 21.7%, and increased elderly use of prescription drugs by 4.7%, implying a price elasticity of demand of -0.22. These effects occurred primarily during the first year of the program. An age- and time-standardized comparison of our quantity results with previous estimates from Walgreens data shows that our findings are 2.6 times as large. We conclude that Part D lowered elderly patients' OOP costs substantially and increased utilization modestly, and note that in comparing results across studies on this topic, magnitudes may vary substantially due to differences in data and methods.

Suggested Citation

  • Jonathan D. Ketcham & Kosali Simon, 2008. "Medicare Part D's Effects on Elderly Drug Costs and Utilization," NBER Working Papers 14326, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:14326
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    References listed on IDEAS

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    1. Mark Duggan & Fiona Scott Morton, 2010. "The Effect of Medicare Part D on Pharmaceutical Prices and Utilization," American Economic Review, American Economic Association, vol. 100(1), pages 590-607, March.
    2. Helen Levy & David Weir, 2007. "Take-Up of Medicare Part D and the SSA Subsidy: Early Results from the Health and Retirement Study," Working Papers wp163, University of Michigan, Michigan Retirement Research Center.
    3. Tomas J. Philipson & Dana Goldman, 2007. "Integrated Insurance Design in the Presence of Multiple Medical Technologies," American Economic Review, American Economic Association, vol. 97(2), pages 427-432, May.
    4. Margaret E. Blume-Kohout & Neeraj Sood, 2008. "The Impact of Medicare Part D on Pharmaceutical R&D," NBER Working Papers 13857, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Lakdawalla, Darius & Sood, Neeraj & Gu, Qian, 2013. "Pharmaceutical advertising and Medicare Part D," Journal of Health Economics, Elsevier, vol. 32(6), pages 1356-1367.
    2. Gary V. Engelhardt & Jonathan Gruber, 2009. "Medicare Part D and the Financial Protection of the Elderly," Working Papers, Center for Retirement Research at Boston College wp2009-24, Center for Retirement Research, revised Oct 2009.
    3. Darius Lakdawalla & Wesley Yin, 2015. "Insurers’ Negotiating Leverage and the External Effects of Medicare Part D," The Review of Economics and Statistics, MIT Press, vol. 97(2), pages 314-331, May.
    4. Abe Dunn & Adam Hale Shapiro, 2015. "Does Medicare Part D Save Lives?," BEA Working Papers 0119, Bureau of Economic Analysis.
    5. Gary V. Engelhardt & Jonathan Gruber, 2010. "Medicare Part D and the Financial Protection of the Elderly," NBER Working Papers 16155, National Bureau of Economic Research, Inc.
    6. Liran Einav & Amy Finkelstein & Maria Polyakova, 2016. "Private Provision of Social Insurance: Drug-specific Price Elasticities and Cost Sharing in Medicare Part D," NBER Working Papers 22277, National Bureau of Economic Research, Inc.
    7. Gary V. Engelhardt & Jonathan Gruber, 2011. "Medicare Part D and the Financial Protection of the Elderly," American Economic Journal: Economic Policy, American Economic Association, vol. 3(4), pages 77-102, November.
    8. Abby Alpert & Darius Lakdawalla & Neeraj Sood, 2015. "Prescription Drug Advertising and Drug Utilization: The Role of Medicare Part D," NBER Working Papers 21714, National Bureau of Economic Research, Inc.
    9. David Powell & Rosalie Liccardo Pacula & Erin Taylor, 2015. "How Increasing Medical Access to Opioids Contributes to the Opioid Epidemic: Evidence from Medicare Part D," NBER Working Papers 21072, National Bureau of Economic Research, Inc.
    10. repec:eee:respol:v:46:y:2017:i:7:p:1255-1271 is not listed on IDEAS
    11. Claudio Lucarelli & Sean Nicholson & Minjae Song, 2010. "Bundling Among Rivals: A Case of Pharmaceutical Cocktails," NBER Working Papers 16321, National Bureau of Economic Research, Inc.
    12. Doiron, Denise & Fiebig, Denzil G. & Suziedelyte, Agne, 2014. "Hips and hearts: The variation in incentive effects of insurance across hospital procedures," Journal of Health Economics, Elsevier, vol. 37(C), pages 81-97.
    13. Darius Lakdawalla & Wesley Yin, 2009. "Insurer Bargaining and Negotiated Drug Prices in Medicare Part D," NBER Working Papers 15330, National Bureau of Economic Research, Inc.
    14. Blume-Kohout, Margaret E. & Sood, Neeraj, 2013. "Market size and innovation: Effects of Medicare Part D on pharmaceutical research and development," Journal of Public Economics, Elsevier, vol. 97(C), pages 327-336.
    15. Alpert, Abby, 2016. "The anticipatory effects of Medicare Part D on drug utilization," Journal of Health Economics, Elsevier, vol. 49(C), pages 28-45.
    16. Francesco Decarolis & Maria Polyakova & Stephen P. Ryan, 2015. "The Welfare Effects of Supply-Side Regulations in Medicare Part D," NBER Working Papers 21298, National Bureau of Economic Research, Inc.
    17. Florian Heiss & Daniel McFadden & Joachim Winter, 2009. "Regulation of private health insurance markets: Lessons from enrollment, plan type choice, and adverse selection in Medicare Part D," NBER Working Papers 15392, National Bureau of Economic Research, Inc.
    18. Robert Kaestner & Cuiping Long & G. Caleb Alexander, 2014. "Effects of Prescription Drug Insurance on Hospitalization and Mortality: Evidence from Medicare Part D," NBER Working Papers 19948, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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