Substitutes in medical care? The impact of Medicare Part D on health care service utilization and spending
The impact of Medicare Part D on health care service utilization and spending
Authors: Joyce, Zissimopoulos, Barofsky, Goldman, Zheng
Abstract
About 31.5 million Medicare beneficiaries were enrolled in Medicare Part D in 2012, and by most metrics, the drug benefit has been a success. Launched in January 2006, the program offers Medicare beneficiaries the option of enrolling in a prescription drug plan administered by a private company. More than 90 percent of Medicare beneficiaries have drug coverage at least as generous as the standard Part D benefit, and about 9 out of 10 Part D enrollees report being satisfied with their plan. At the same time, the costs of the program have been far lower than predicted—as much as 30% below what the Congressional Budget Office originally projected. Lower program costs are largely attributable to competition between plans, high rates of generic drug use, and the preference of beneficiaries for low-premium plans. Moreover, the increase in prescription drug use by Medicare beneficiaries and better adherence to medications brought about by lower out of pocket drug expenditures was expected to reduce utilization of medical services. The evidence for these cost offsets, as well as the timing and magnitude of these spending changes, however, has been limited and inconclusive.
The goal of this research is to analyze whether the prescription drug coverage expansion of Part D reduced beneficiary expenditures in Medicare Parts A and B and the timing of those changes. A widely cited study found that the introduction of Part D led to a 10.6% reduction in Part A&B expenditures, with most of the reduction occurring in the first year of the program (2006). However, other studies find little or no effect of Part D on medical service use.
In this study, we use a twenty percent sample of Part A&B claims for traditional fee-for-service Medicare enrollees (1992-2010) and Part D claims from 2006 to 2010. The claims and enrollment files are linked to geographic data to capture beneficiaries socioeconomic status at the zip-code level (e.g. education, income). We examine changes in Part A and B spending before and after the implementation of Part D, overall, and for different groups of beneficiaries most and least likely to have been affected by the insurance expansion. We find little evidence that the introduction of Part D reduced Part A and B expenditures in the first year of the program. However, Part D appears to reduce inpatient spending modestly over time.