The Impact of Medicare Part D on Out-of-Pocket Costs for Prescription Drugs, Medication Utilization, Health Resource Utilization, and Preference-Based Health Utility

The implementation of Medicare Part D on January 1, 2006 provided a voluntary outpatient prescription drug benefit to 43 million Medicare beneficiaries for the first time since Medicare's inception (Doherty 2004). Following the implementation of Part D, Medicare's portion of national prescription drug spending increased from 2 percent (2005) to 18 percent (2006) (Kaiser Family Foundation 2008). Around 50–60 percent of Medicare beneficiaries without prior prescription drug coverage had Part D drug coverage in 2006 (Levy and Weir 2009). The estimated federal cost of Part D from 2007 through 2016 is U.S.$768 billion dollars (Kaiser Family Foundation 2006). Studies have found that Part D increased Medicare beneficiaries' prescription utilization and decreased their out-of-pocket costs (Lichtenberg and Sun 2007; Simoni-Wastila et al. 2008; Yin et al. 2008;). However, it is less clear whether the program has led to reductions, or offsets, in nonprescription utilization of health care services. Khan, Kaestner, and Lin (2008) used data from the 1992–2000 Medicare Current Beneficiary Survey and found that prescription drug insurance did not appear to reduce beneficiary's hospitalizations. In contrast, Hsu et al. (2006) analyzed Medicare Part C claims data from Kaiser Permanente–Northern California and concluded that increases in medication coverage resulted in reduced hospitalizations and lower health care expenditures. Similarly, Zhang et al. (2009) analyzed claims data from a Medicare Advantage plan for a Pennsylvania insurer 2 years before and 2 years after the implementation of Part D and found that the increased spending on prescription drugs was offset by lower nondrug medical spending among groups with limited or no previous drug coverage. We sought to study the overall policy impact of Part D on non-low-income Medicare beneficiaries using detailed health care utilization and expenditure data from a large, nationally representative sample of Medicare beneficiaries. This study hypothesized that Part D eligibility would be associated with an increase in Medicare beneficiaries' medication utilization and a reduction in their out-of-pocket costs for prescription drugs, emergency department use, and hospitalization rates (Gellad et al. 2006; Tjia and Schwartz 2006;) as well as improvement in Medicare beneficiaries' overall health measured by preference-based health utility.