A Medicare Prescription Drug Benefit: Issues and Options

Pharmaceuticals are an integral part of modern medical treatment, often improving quality of life and reducing the need for hospitalization, yet the traditional Medicare benefits package does not include coverage of outpatient prescription drugs. When Medicare was created in 1965, insurance coverage for prescription drugs was not standard and fewer effective pharmaceutical treatments were available. Yet, the practice of medicine has changed dramatically since that time and prescription drug coverage is now a common feature of private insurance. Almost every one of Medicare's 40 million beneficiaries uses pharmaceuticals regularly, filling an average of 30 prescriptions in 1999. The elderly are disproportionately likely to use drugs, representing less than 15 percent of population but accounting for 40 percent of prescription drug expenditures. While most Medicare beneficiaries have assistance paying for outpatient prescription drugs, four of 10 (38 percent) had no drug coverage in the fall of 1999, while 25 percent lacked coverage for the entire year. Many of those with supplemental drug coverage have it as part of their retiree benefits package. Some have enrolled in Medicare+Choice managed care plans that include a prescription drug benefit. Others purchase a Medigap policy that includes drug coverage. Eligible low-income beneficiaries can obtain state-based coverage through Medicaid (since every state currently opts to provide prescription drug benefits) or some states' pharmacy assistance programs. Other public sources for those who are eligible include the Department of Veterans Affairs and Department of Defense. Medicare beneficiaries without drug coverage fill fewer prescriptions and face higher out-of-pocket drug costs than those with coverage. In 1999, those without drug coverage filled an average of seven fewer prescriptions than did those with coverage (25 versus 32).