How the Medicare Part D drug benefit changed the distribution of out-of-pocket pharmacy spending among older beneficiaries

Abstract

Objective: To examine the impact of the Medicare drug benefit (Part D) on the distribution of out-of-pocket pharmacy spending among older adults.

Methods: We used a pre-post-with-comparison-group design to compare four groups of beneficiaries continuously enrolled in a Medicare Advantage plan between 2004 and 2007: three intervention groups with no or limited (quarterly caps of $150 or $350) prior coverage that obtained Part D benefits in 2006 and a comparison group with stable drug coverage from 2004 to 2007.

Results: The comparison group's out-of-pocket drug spending was stable throughout 2004-2007, whereas Part D reduced out-of-pocket spending 13.4% among those without prior coverage (95% confidence interval [CI] -17.1% to -9.1%) and 15.9% among those with $150 quarterly caps (95% CI -19.1% to -12.8%) relative to the comparison group. Individuals in the top decile of drug spending paid a greater share of their costs out-of-pocket than others in the top 5 deciles.

Discussion: Although Part D reduced out-of-pocket expenditures for older adults, those with the highest drug spending still pay a substantial share of their drug costs out-of-pocket. Thus, the Part D benefit does not achieve a primary purpose of insurance-to offer the greatest financial protection to those at the highest risk.

Figure 1.

Monthly out-of-pocket drug spending. Notes. Monthly out-of-pocket spending prior to Part D in the $150-cap and $350-cap groups was cyclical, reflecting the quarterly caps prior to Part D. For example, in the $150-cap group, out-of-pocket costs on average in Month 3 of the quarter were $16 higher than costs in Months 1 and 2 of the quarter in the pre-period, at statistical significant level with p < .001 (t value = 11.48). In the $350-cap group, out-of-pocket costs in Month 3 of the quarter were $10 higher than costs in Months 1 and 2 of the quarter in the pre-period (t value = 22.64, p < .001).

Figure 2.

Out-of-pocket and insurance payment by deciles of total drug spending in 2005 and 2006. Notes. Deciles are based on total drug spending. Percentages on top of the bars are ratios of out-of-pocket spending divided by total drug spending. Numbers in the bars are pharmacy spending paid out-of-pocket (top) and insurance plan payment (bottom). In the no-coverage group, numbers in the bars for first few three deciles are too small to be shown: in the first decile, out-of-pocket (OOP) costs were both zero; in the second decile, OOP costs increased from $7 in 2005 to $13 in 2006 (an 83% increase); in the third decile, OOP costs increased from $29 to $52, or an 82% increase; in the fourth decile, OOP costs increased from $68 to $109, or a 59% increase; and in the fifth decile, OOP costs increased from $128 to $181, or a 42% increase. On average, it was a 67% increase among those with total drug spending below the median.