Outpatient prescription drugs, which are not covered under Medicare, represent a substantial out-of-pocket burden for many Medicare beneficiaries. It has been argued that because roughly two-thirds of beneficiaries have some type of coverage from other sources, a Medicare drug benefit for all beneficiaries is not necessary. To help inform this debate, Mary Jo Gibson, Normandy Brangan, David Gross, and Craig Caplan of PPI examine beneficiary out-of-pocket drug spending from two perspectives. First, they look at average drug spending in 1999 by sociodemographic characteristics, health status, presence of drug coverage, and supplemental insurance. Second, they focus on the characteristics of beneficiaries with "high" ($500-$999) and "very high" ($1,000 or more) levels of annual spending compared to those with low to moderate spending (less than $500). In this 20-page issue paper, the authors conclude that: (l) private sector drug coverage is often inadequate: (2) limiting a Medicare drug benefit to beneficiaries with low incomes could exclude many beneficiaries most in need of assistance; and (3) even though a Medicare drug benefit should not be for low income beneficiaries alone, poor beneficiaries (those with incomes below poverty) often face substantial out-of-pocket costs as a share of their income.