Prescription Drug Coverage and Elderly Medicare Spending

The introduction of Medicare Part D has generated interest in the cost of providing drug coverage to the elderly. Of paramount importance -- often unaccounted for in budget estimates -- are the salutary effects that increased prescription drug use might have on other Medicare spending. This paper uses longitudinal data from the Medicare Current Beneficiary Survey (MCBS) to estimate how prescription drug benefits affect Medicare spending. We compare spending and service use for Medigap enrollees with and without drug coverage. Because of concerns about selection, we use variation in supply-side regulations of the individual insurance market -- including guaranteed issue and community rating -- as instruments for prescription drug coverage. We employ a discrete factor model to control for individual-level heterogeneity that might induce bias in the effects of drug coverage. Medigap prescription drug coverage increases drug spending by $170 or 22$350 or 13% (in 2000 dollars). Medigap prescription drug coverage reduces Medicare Part B spending, but the estimates are not statistically significant. Overall, a $1 increase in prescription drug spending is associated with a$2.06 reduction in Medicare spending. Furthermore, the substitution effect decreases as income rises, and thus provides support for the low-income assistance program of Medicare Part D.

Socioeconomic Differences in the Adoption of New Medical Technologies

New medical technologies hold tremendous promise for improving population health, but they also raise concerns about exacerbating already large differences in health by socioeconomic status (SES). If effective treatments are more rapidly adopted by the better educated, SES health disparities may initially expand even though the health of those in all groups eventually improves. Hypertension provides a useful case study. It is an important risk factor for developing cardiovascular disease, the condition is relatively common, and there are large differences in rates of hypertension by education. This paper examines the short and long-term diffusion of two important classes of anti-hypertensives - ACE inhibitors and calcium channel blockers - over the last twenty-five years. Using three prominent medical surveys, we find no evidence that the diffusion of these drugs into medical practice favored one education group relative to another. The findings suggest that - at least for hypertension - SES differences in the adoption of new medical technologies are not an important reason for the SES health gradient.

The Reallocation of Compensation in Response to Health Insurance Premium Increases

This paper examines how compensation packages change when health insurance premiums rise. We use data on employee choices within a single large firm with a flexible benefits plan; an increasingly common arrangement among medium and large firms. In these companies, employees explicitly choose how to allocate compensation between cash and various benefits such as retirement, medical insurance, life insurance, and dental benefits. We find that a $1 increase in the price of health insurance leads to 52-cent increase in expenditures on health insurance. Approximately 2/3 of this increase is financed through reduced wages and 1/3 through other benefits

Three Large-Scale Changes To The Medicare Program Could Curb Its Costs But Also Reduce Enrollment

With Medicare spending projected to increase to 24 percent of all federal spending and to equal 6 percent of the gross domestic product by 2037, policy makers are again considering ways to curb the program's spending growth. We used a microsimulation approach to estimate three scenarios: imposing a means-tested premium for Part A hospitalinsurance, introducing a premium support credit to purchase health insurance, and increasing the eligibility age to sixty-seven.We found thatthe scenarios would lead to reductions in cumulative Medicare spending in 2012 -- 36 of 2.4 -- 24.0 percent. However, the scenarios also would increase out-of-pocket spending for enrollees and, in some cases, causemillions of seniors not to enroll in the program and to be left without coverage. To achieve substantial cost savings without causing substantial lack of coverage among seniors, policy makers should consider benefitchanges in combination with other options, such as some of those now being contemplated by the Obama administration and Congress

Want More Value From Prescription Drugs? We Need to Let Prices Rise and Fall

The high price of some cancer drugs has recently come under attack by the medical profession. We examine the reasons behind the pricing strategies of cancer drugs. On the one hand, prices should reflect value and research demonstrates that the health benefits from novel cancer drugs have been enormous in terms of additional years of life patients can now enjoy. This provides some justification for the high price tag of these drugs. On the other hand, drug pricing is also a product of a hidebound reimbursement system that does a poor job in letting prices adjust to new information about value. Regulators set thresholds for cost-effectiveness, which establishes not only a price ceiling but also a price floor. Manufacturers often price drugs high at launch in efforts to recoup their initial investment, but a more efficient system would allow prices to both rise and fall over time. Removing distortions in the reimbursement system is crucial to ensuring continued success in saving lives

International Differences in Longevity and Health and Their Economic Consequences

In 1975, 50 year-old Americans could expect to live slightly longer than their European counterparts. By 2005, American life expectancy at that age has diverged substantially compared to Europe. We find that this growing longevity gap is primarily the symptom of real declines in the health of near-elderly Americans, relative to their European peers. In particular, we use a microsimulation approach to project what US longevity would look like, if US health trends approximated those in Europe. We find that differences in health can explain most of the growing gap in remaining life expectancy. In addition, we quantify the public finance consequences of this deterioration in health. The model predicts that gradually moving American cohorts to the health status enjoyed by Europeans could save up to $1.1 trillion in discounted total health expenditures from 2004 to 2050.disability, mortality, international comparisons, microsimulation

Understanding the Economic Consequences of Shifting Trends in Population Health

The public economic burden of shifting trends in population health remains uncertain. Sustained increases in obesity, diabetes, and other diseases could reduce life expectancy − with a concomitant decrease in the public-sector's annuity burden − but these savings may be offset by worsening functional status, which increases health care spending, reduces labor supply, and increases public assistance. Using a microsimulation approach, we quantify the competing public-finance consequences of shifting trends in population health for medical care costs, labor supply, earnings, wealth, tax revenues, and government expenditures (including Social Security and income assistance). Together, the reduction in smoking and the rise in obesity have increased net public-sector liabilities by $430bn, or approximately 4% of the current debt burden. Larger effects are observed for specific public programs: annual spending is 10% higher in the Medicaid program, and 7% higher for Medicare.disability, health care costs, social security, microsimulation

Geographic Variation in Health Care: The Role of Private Markets

health care, public sector, Medicare, insurance