Academic journal article Health Care Financing Review

Utilization Effects of Prescription Drug Benefits in an Aging Population

Academic journal article Health Care Financing Review

Utilization Effects of Prescription Drug Benefits in an Aging Population

Article excerpt


Insurance coverage of health care services often results in higher levels of use. Some increases in the consumption of health care that result from benefit coverage are economically efficient and desirable outcomes (Cook and Graham, 1977; Gianfrancesco, 1978). Indeed, the principal reason for benefit coverage is to remove financial barriers that might otherwise prevent individuals from obtaining needed care. However, practical distinction between increases in use that are efficient and those that are excessive is difficult. This difficulty could influence the design of future benefit packages or result in the implementation of controls, such as higher levels of cost sharing, that inappropriately constrain use as well as reduce coverage. In theory, the relationship of insurance coverage to level of use presumably applies to the more specific case of prescription drug coverage. Therefore, an understanding of how insurance coverage of prescription drugs affects consumption of these products is important not only in considering the addition of prescription coverage where none exists but also in developing cost sharing that is effectively targeted. Several existing studies have investigated the effects of insurance coverage on prescription use.

The RAND Health Insurance Experiment (HIE) demonstrated a clear relationship between insurance coverage and prescription drug utilization. Leibowitz, Manning, and Newhouse (1985) found that individuals randomly assigned to a plan with no coinsurance or deductible generated prescription expenditures 60 percent higher than those randomly assigned to a group with practically no coverage. Most of the difference was due to a higher number of prescriptions, while a small part was due to a higher cost per prescription. The RAND HIE demonstrated that the insurance effect on prescription drugs is very similar to its effect on all ambulatory services. Unfortunately, the experiment did not examine the effect of drug coverage independent of other medical coverage. Moreover, persons 65 years of age or over were excluded from the study.

Other studies have addressed the effects of changes in drug coverage offered by State Medicaid and elderly drug benefit programs. Nelson, Reeder, and Dickson (1984) found that the implementation of a .50 copayment per prescription in the South Carolina Medicaid program led to a decrease in the number of prescriptions per beneficiary. In a followup to this study, Reeder and Nelson (1985) found that the copayment had a differential effect among therapeutic categories of drugs, but effects were not limited to "discretionary" drugs. In a study of cost-containment measures in the New Hampshire Medicaid program, Soumerai et al. (1987) found that a limit of three covered prescriptions per month decreased utilization among users of multiple medications by 46 percent. For "marginal" or "ineffective" medications the decline was 60 percent, while for "essential" medications the decline was more moderate, though substantial, at 30 percent.

Evidence of the behavioral effects of copayments is not limited to low-income individuals or to traditional indemnity coverage. Harris et al. (1990) reported significant declines in utilization following the imposition of $1.50 and $3.00 per prescription copayments (implemented in successive years, with medical benefits held constant) among a population receiving employment-based coverage through a large health maintenance organization (HMO). This study, like the RAND HIE, included only persons 65 years of age or under.

Moeller (1989) addressed the issue of an insurance effect of drug coverage in a study using data from the National Medical Care Expenditure Survey of 1977. Employing regression analysis, Moeller found no statistically significant differences in prescription drug utilization or expenditure between insured persons with drug coverage and those without drug coverage. Among those with drug coverage, the generosity of coverage produced no significant effects on utilization or expenditures. …

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