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Health Care Costs and Financing

How Prescription Drug Use Affects Health Care Utilization and Spending by Older Americans: A Review of the Literature

Research Report

Cindy Parks Thomas, Ph.D., Brandeis University, Schneider Institute for Health Policy

April 2008


In spite of the expectation that greater use of prescription drugs should lead to improved health outcomes, fewer complications, decreased disability, and lower overall health care costs, the impact of prescription drug insurance coverage on medical spending has not been well documented. While the literature generally agrees that providing prescription drug coverage increases use of medications, estimates of the overall effect on heath and medical costs of providing such coverage have ranged widely.

This AARP Public Policy Institute report by Cindy Parks Thomas of Brandeis University surveys the professional literature through 2007 and identifies factors that affect non-drug health service use and spending but are often questioned or overlooked. The review finds support for the following:

  • Prescription drug coverage can produce cost offsets from reductions in non-drug services, such as hospitalizations and emergency visits.
  • Studies that incorporate increased longevity into spending projections suggest that cost offsets may diminish over time.
  • Strict benefit limits of all kinds decrease prescription drug use and increase use of other medical services, including acute and long-term care services.
  • Increased prescription drug cost sharing decreases the use of essential and nonessential classes of medications.
  • Increased patient cost sharing reduces use and spending for prescription drugs, with a 10 percent increase in drug cost sharing being associated with a decrease in drug use of 1-6 percent.
  • Appropriate use of prescription drugs leads to improved health outcomes for many chronic conditions in older adults.
  • Prescription drug coverage increases drug use by as much as 20 percent and improves patient adherence to medication regimens.

These findings suggest some important policy implications, including the following:

  • Appropriate prescription drug use should be encouraged, particularly among older adults with chronic conditions.
  • Patient adherence to prescription drug regimens can be improved by reducing prescription drug prices, adding coverage for the uninsured, and reducing cost sharing for those with prescription drug coverage. However, increased adherence may also increase prescription drug spending.
  • One may need to target cost sharing for prescription drugs by type of medication and patient condition to minimize unintended consequences in other areas, such as non-drug spending and health outcomes.

Although it appears reasonable to conclude that prescription drug coverage improves health outcomes for many chronic conditions in older adults and increases drug spending, many questions remain about how best to increase desired effects and minimize unintended and undesirable consequences. (57 pages)

Pub ID: 2008-04