The anticipatory effects of Medicare Part D on drug utilization

Abstract

While health care policies are frequently signed into law well before they are implemented, such lags are ignored in most empirical work. This paper demonstrates the importance of implementation lags in the context of Medicare Part D, the prescription drug benefit that took effect two years after it was signed into law. Exploiting the differential responses of chronic and acute drugs to anticipated future prices, I show that individuals reduced drug utilization for chronic but not acute drugs in anticipation of Part D's implementation. Accounting for this anticipatory response substantially reduces the estimated total treatment effect of Part D.

Keywords: Anticipation effects; Forward-looking behavior; Intertemporal substitution; Medicare Part D; Prescription drugs.

Fig. 1.

Mean annual drug utilization in MEPS and MCBS. Notes: Author’s calculation using MEPS 1997–2007 and MCBS 2001–2006, non-institutionalized population aged 66–74, weighted. Includes individuals who appear in the sample for 2 or more consecutive years.

Fig. 2.

Chronic and acute announcement and implementation effects. Notes: MCBS 2001–2006, weighted. The points represent weighted sample means. Chronic and acute categories are defined by the median assignment rule and correspond to the results in Table 4. The dashed lines show preannouncement trends projected forward. These are obtained by estimating the basic model, Equation 1, without controls. To implement this, I first estimate the coefficients in the basic model from Equation 1. Then I set the announcement and implementation indicators to zero for all observations and compute the predicted values for total prescriptions in each year. Chronic and acute trends have separate y-axes.