Medicare, the federal health insurance program for older persons and those with disabilities, typically does not pay for the costs of outpatient prescription drugs. Because of this gap in coverage, beneficiaries must either pay for prescription drugs out of their own pockets, obtain private or public supplemental coverage that will assist with the costs, or join a Medicare HMO that offers prescription drug benefits. More than half (54%) of beneficiaries in Medicare's fee-for-service program have some type of coverage for prescription drugs (through employer-sponsored coverage, Medigap, or Medicaid). Such coverage, however, often does not protect beneficiaries from high out-of-pocket costs. This FYI presents estimates of the extent to which Medicare fee-for-service beneficiaries are burdened with out-of-pocket prescription drug expenses.
- Average annual costs for prescription drugs represented 17 percent of total out-of-pocket health care spending by Medicare fee-for-service beneficiaries in 1997. According to our projections, this proportion translates into an average of $350 per fee-for-service beneficiary in 1997, including both those who did and those who did not incur out-of-pocket expenses for drugs.
- (Click here to see Average Out-of-Pocket Spending by Fee-for-Service Medicare Beneficiaries, by Health Care Expense Category, 1997.)
- The 79 percent of fee-for-service beneficiaries who did incur prescription drug costs in 1997 spent an estimated $440 out-of-pocket, on average. Of this group, 15 percent were estimated to have spent between $50 and $100 per month, and 8 percent spent more than $100 per month for prescription drugs.
- (Click here to see Average Monthly Out-of-Pocket Spending on Prescription Drugs by Fee-for-Service Medicare Beneficiaries, 1997.)
- Fee-for-service beneficiaries with annual incomes below $10,000 - who are less likely to have prescription drug coverage - were estimated to have spent an average of 8 percent of their income out-of-pocket for prescription drugs. By contrast, beneficiaries with annual incomes above $25,000 were estimated to have spent an average of 2 percent of income on prescription drugs.
- (Click here to see Average Monthly Out-of-Pocket Spending on Prescription Drugs by Fee-for-Service Medicare Beneficiaries, as % of Income, 1997.)
- Private supplemental insurance often does not insulate beneficiaries from high out-of-pocket health spending on prescription drugs. For example, most people with individual Medigap policies do not have prescription drug benefits, and those who do face a $250 deductible, 50% coinsurance, and annual limits of either $1,250 or $3,000, depending on the policy, on drug benefits.
- In 1997, about two-thirds (65%) of fee-for-service beneficiaries with Medicaid coverage who used prescription drugs faced some out-of-pocket costs for those drugs. All state Medicaid programs have some form of drug coverage. Thirty-two state Medicaid programs required copayments for drugs, which ranged from $0.50 to $3.00 per prescription.
- AARP/PPI analysis of the 1995 Medicare Current Beneficiary Survey Access to Care files. Includes non-institutionalized fee-for-service beneficiaries enrolled in Medicare for all of 1995. Determination of drug coverage is based on self-reported data.
- AARP/PPI analysis using the Medicare Benefit Simulation Model. This estimate excludes premium payments for private insurance coverage that may include prescription drugs.
- AARP/PPI analysis using the Medicare Benefit Simulation Model.
- National Pharmaceutical Council, Pharmaceutical Benefits under State Medical Assistance Programs, November 1997.
Written by David Gross, Craig Caplan, and Mary Jo Gibson, AARP Public Policy Institute
May be copied only for noncommercial purposes and with attribution; permission required for all other purposes.
Public Policy Institute, AARP, 601 E Street, NW, Washington, DC 20049