Pharmacy Prescription Drugs: Accessibility and Prices

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Prescription Drugs: Accessibility and Prices
Prescription drugs play an ever-increasing role in modern medicine. New medications are improving health outcomes and quality of life, replacing surgery and other invasive treatments...

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Prescription drugs play an ever-increasing role in modern medicine. New medications are improving health outcomes and quality of life, replacing surgery and other invasive treatments, and quickening recovery for patients who receive these treatments. As important as prescription drugs are, not everyone has access to them. The newest drugs are often the most expensive, and millions of Americans - especially elderly and disabled Medicare beneficiaries - have inadequate or no insurance coverage for drugs. Nearly a third of all Medicare beneficiaries have no financial protection for the costs of drugs, if they can obtain them at all. Many additional beneficiaries find themselves moving in and out of the protection provided by insurance over the course of a year.

Medicare has generally excluded coverage of outpatient prescription drugs, as was common in private health plans when the program was enacted in 1965. Since then drug coverage has become a standard feature of private insurance, and it has become clear that the omission of outpatient drug coverage represents a crucial gap in protection for the most vulnerable Medicare beneficiaries. As part of a broader plan to modernize Medicare, President Clinton has proposed a new, voluntary Medicare drug benefit that would offer all beneficiaries access to affordable, high-quality prescription drug coverage while maintaining the fiscal integrity of the program. In Congress, there has also been growing bipartisan interest in finding ways of extending drug coverage.

As policymakers consider options to ensure that every American can have access to innovative drug treatments, there is an urgent need for comprehensive and reliable information on drug coverage, drug spending, and drug prices. On October 25, 1999, the President directed the Secretary of Health and Human Services to study prescription drug costs and trends for Medicare beneficiaries. He asked that the study investigate:

* price differences for the most commonly used drugs for people with and without coverage;

* drug spending by people of various ages, as a percentage of income and of total health spending; and

* trends in drug expenditures by people of different ages, as a percentage of income and of total health spending.

This report is the Department's response to that request. It represents the work of individuals and agencies throughout the Department, including the Agency for Healthcare Research and Quality (AHRQ), the Food and Drug Administration (FDA), the Health Care Financing Administration (HCFA(now known as CMS)), and the Office of the Assistant Secretary for Planning and Evaluation (ASPE).

Chapter 1: Prescription Drug Coverage

While today, over 85 percent of Medicare beneficiaries use at least one prescription drug annually, beneficiaries must obtain drug coverage through a supplemental policy, by enrollment in a Medicare+Choice plan which includes coverage for prescription drugs, or through Medicaid. The result has been a patchwork of coverage that is not dependable, affordable, or accessible to all beneficiaries. Chapter 1 uses survey data to examine the sources of drug coverage for both the Medicare and non-Medicare population, describes the economic and demographic characteristics of those who have drug coverage and those who do not, and analyzes current trends in drug coverage. Analysis of data on the duration of coverage for the Medicare population is also presented. Differences in coverage rates by alternative measures of health status are explored. Lastly, trends in drug coverage for the Medicare and non-Medicare population are analyzed.

Key findings include:

* Only 53 percent of Medicare beneficiaries had drug coverage for the entire year of 1996, although 69 percent had coverage for at least one month during the year.

* Most sources of drug coverage are potentially unstable. Almost 48 percent of beneficiaries with drug coverage through Medigap and 29 percent who were covered through Medicare HMOs had drug coverage for only part of the year. Additionally, while employer-sponsored retiree coverage, the most prevalent single source of drug benefits, covered 32 percent of Medicare beneficiaries in 1996, 14 percent of those beneficiaries had only part year coverage from their former employers.

* Drug benefits are becoming less generous. There is considerable evidence that cost sharing for prescription drugs is increasing and that overall caps on coverage are both becoming more common and are being set at lower levels. For example, Medicare+Choice plans generally have reduced drug benefits and increased enrollee out-of-pocket costs in 2000. Eighty-six percent of plans have annual dollar limits on drugs, including 70 percent of plans with annual caps of $1000 or less, and 32 percent with caps of $500 or less per enrollee - levels that are up from 35 percent and 19 percent in 1998.

* Drug coverage is likely to decline as fewer employers offer health benefits to future retirees. For example, one employer survey recorded a drop from 40 percent in 1993 to 28 percent in 1999 in the number of large firms offering health benefits to Medicare eligible retirees. Additionally, employers have tightened eligibility rules and increased cost-shifting to retirees. Of those employers that still offer medical coverage, the survey found that 40 percent are requiring Medicare-eligible retirees to pay the full cost of their benefits, compared to 28 percent in 1995.

* Beneficiaries with incomes between 100 percent and 150 percent of poverty (that is, individuals age 65 or older with incomes between $7,527 and $11,287 in 1996) have the lowest rate of coverage. Although coverage varies by income, nearly one-fourth of beneficiaries with incomes over 400 percent of poverty lack coverage.

* Beneficiaries are less likely to have coverage if they are very old or live outside of a metropolitan area. About 37 percent of beneficiaries age 85 and above lacked coverage at any time during 1996 compared to 28 percent of beneficiaries age 65 through 69. About 43 percent of beneficiaries living in rural areas lacked drug coverage, compared to 27 percent of beneficiaries living in urban areas.

* Coverage rates vary little by self-reported health status, but are considerably higher for those with five or more chronic conditions. But by all measures, at least one-fourth of those in any category of health status lack coverage.

* Nearly one in four in the non-Medicare population never had any coverage for drugs in 1996. About 80 percent of those with full-year coverage got that coverage through employers.

Chapter 2: Effects of Prescription Drug Coverage on Spending and Utilization

Insurance coverage for prescription drugs makes a major difference in the amount of drugs people obtain, in how much they spend on drugs out of pocket, and in how much is spent in total on their behalf. People with coverage not only fill more prescriptions than those without coverage; they are likely to have access to a broader array of therapies, including more costly therapies. People without drug coverage face greater financial burdens and may sometimes be unable to follow the courses of treatment ordered by their physicians. There are even some indications that physicians themselves may recommend different therapies to people with and without coverage. Coverage increases prescription drug utilization, and reduces financial burdens for all population groups. However, access to drug coverage is most important for the elderly, simply because they require more medications, including a higher prevalence of long-term maintenance drugs for chronic conditions.

Chapter 2 presents detailed comparisons of utilization and spending (including out-of-pocket spending) for Medicare beneficiaries and the total population with and without drug coverage. It also examines some of the possible reasons for those differences and considers the consequences of being without coverage. Finally, it summarizes trends in utilization and spending and some of the factors that influence these changes.