Medicare: Prescription Drug Expenditures, 1997

Medicare: Prescription Drug Expenditures, 1997

Order Code RS20612
Updated April 18, 2001
CRS Report for Congress
Received through the CRS Web
Medicare: Prescription Drug
Expenditures, 1997
Paulette C. Morgan
Analyst in Social Legislation
Domestic Social Policy Division
Summary
Medicare beneficiaries spent, on average, a total of $744 per person for prescription
drugs in 1997 (including beneficiaries’ out-of-pocket expenses and payments made by
any third party payers). Approximately 37% of beneficiaries had total prescription drug
expenditures of between $0 and $250. Approximately 25% of beneficiaries had total
prescription drug expenditures between $1 and $250, which represented 4% of overall
drug expenditures for beneficiaries. In contrast, 8% of beneficiaries with total drug
expenditures above $2,000 accounted for 33% of overall drug expenditures.
Beneficiaries’ out-of-pocket expense for prescription drugs in 1997 was $347, on
average, though about 60% of beneficiaries spent less than $250 out-of-pocket on
prescription drugs. Beneficiaries with no drug coverage spent, on average, $520 for
drugs, while those with drug coverage had total drug expenditures averaging $826 and
out-of-pocket expenditures averaging $284. Total and out-of-pocket costs of
prescription drugs vary by supplemental insurance coverage.
Background
Prescription drugs are an increasingly important part of medical treatment and
medical care costs. Prescription drug expenditures comprised approximately 9% of health
care spending in 1999.1 Drug costs are the fastest-growing component of overall health
care costs. The Congressional Budget Office predicts the annual growth in prescription
drug expenditures will be over 13% per year for each of the next 2 years.
Medicare does not cover most outpatient prescription drugs. However, about 73%
of Medicare beneficiaries had some form of public or private drug coverage at some point
during 1997. The analysis in this report provides information on Medicare beneficiaries
with drug coverage at any point in 1997. Some beneficiaries may not have coverage for
1 Health Care Financing Administration, Office of the Actuary.
Congressional Research Service ˜ The Library of Congress

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the entire year. For example, some studies have found that only 53% of beneficiaries have
prescription drug coverage for the entire year.2 Table 1 shows the proportion of Medicare
beneficiaries with outpatient prescription drug coverage by Medicare eligibility category3
and income to poverty guideline4 ratio in 1997. Almost 71% of beneficiaries with incomes
at or below the poverty guideline had prescription drug coverage. Medicaid covered
prescription drugs for at least 18% of those people. The proportion of beneficiaries with
drug coverage dropped to about 65% for individuals between 100% and 135% of poverty,
but was higher for beneficiaries with larger incomes.
Table 1. Drug Coverage by Eligibility Category and Income to
Poverty Ratio, 1997
(number in thousands)
With Drug Coverage
Without Drug Coverage
Number
Percent
Number
Percent
All Medicare Beneficiaries
Income <=100% of Poverty
4,168
70.8%
1,720
29.2%
> 100% to <=135% of Poverty
3,224
65.1%
1,730
34.9%
> 135% to <=150% of Poverty
1,207
66.4%
611
33.6%
> 150% to <=200% of Poverty
3,880
69.2%
1,726
33.8%
> 200% to <=400% of Poverty
9,697
77.4%
2,834
22.6%
> 400% of Poverty
4,532
80.5%
1,100
19.5%
Total
26,708
73.3%
9,721
26.7%
Aged Beneficiaries
Income <=100% of Poverty
3,071
70.0%
1,315
30.0%
> 100% to <=135% of Poverty
2,600
64.8%
1,410
35.2%
> 135% to <=150% of Poverty
1,070
66.0%
551
34.0%
> 150% to <=200% of Poverty
3,459
69.4%
1,522
30.6%
> 200% to <=400% of Poverty
8,955
76.7%
2,718
23.3%
> 400% of Poverty
4,214
79.7%
1,075
20.3%
Total
23,369
73.1%
8,590
26.9%
Disabled/ESRD* Beneficiaries
Income <=100% of Poverty
1,097
73.1%
404
26.9%
> 100% to <=135% of Poverty
624
66.1%
320
33.9%
> 135% to <=150% of Poverty
–
–
–
–
> 150% to <=200% of Poverty
421
67.3%
205
32.7%
> 200% to <=400% of Poverty
742
86.5%
116
13.5%
> 400% of Poverty
–
–
–
–
Total
3,339
74.7%
1,130
25.3%
Source: Table prepared by the Congressional Research Service based on analysis of data from the 1997 Medicare
Current Beneficiary Survey (MCBS) Cost and Use File. These estimates differ slightly from other published
2 Stuart, Bruce, et al. Prescription Drug Costs for Medicare Beneficiaries: Coverage and Health
Status Matter. The Commonwealth Fund, Issue Brief, January 2000.
3 Individuals become eligible for Medicare either because of age (65 years of age or older), or
because of a disability (including end stage renal disease).
4 The poverty guidelines are published by the Department of Health and Human Services and are
used primarily for program eligibility purposes. The poverty thresholds are different measures of
poverty updated by the Census Bureau and used primarily for statistical purposes. In addition, the
Medicare Current Beneficiary Survey contains income information on the beneficiary and spouse.
The Current Population Survey (CPS), in contrast, defines family more broadly and contains
detailed income data on all members in the family. As a result, the estimated number of Medicare
beneficiaries with incomes below poverty differ between the two surveys.

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estimates using the MCBS due to the inclusion or exclusion of beneficiaries who spent any part of 1997 in an
institution, and the use of poverty thresholds versus poverty guidelines.
Note: Income categories are based on beneficiary income as a percent of the Federal Poverty Guidelines. See footnote
4 for a discussion of poverty estimates using the MCBS. Drug coverage is defined as individuals with prescription
drug coverage at any time during 1997. This includes individuals who enter Medicare or change supplemental
insurance coverage during the year. A hyphen indicates that the sample size is too small to provide a reliable estimate.
* End stage renal disease.
Overall Total and Out-of-pocket Drug Expenditures.
Approximately $28 billion was spent on prescription drugs by Medicare beneficiaries
in 1997. The total drug expenditure for an individual includes both the beneficiary out-of-
pocket expense and payments made by any third-party payers. The average per capita
total prescription drug expenditure for Medicare beneficiaries was $744 in 1997. Figure
1 shows two distributions: the
Figure 1. Medicare Beneficiaries and Total Drug distribution of Medicare
Expenditures by Annual Expenditures per
beneficiaries by categories of
Beneficiary, 1997
per capita spending on drugs
and the distribution of overall
drug expenditures for these
categories of beneficiaries.
About 12% of beneficiaries did
not purchase any prescription
drugs in 1997. Twenty-five
percent of beneficiaries had
drug expenditures of between
$1 and $249; their drug
expenditures represent 4% of
overall drug spending for the
Medicare population. In
contrast, the 8% of beneficiaries
whose drug expenditures
exceeded $2,000 for the year
accounted for 33% of the total
drug spending for Medicare
beneficiaries.
Source: Figure created by the Congressional Research Service based on data from the
1997 Medicare Current Beneficiary Survey, Cost and Use File
In contrast to the $744 average total drug spending by Medicare beneficiaries,
average out-of-pocket prescription drug spending was $347 in 1997. Half of beneficiaries
spent $165 or less out-of-pocket. About 60% of beneficiaries spent less than $250 out-of-
pocket in 1996.
Total and out-of-pocket drug expenditures for Medicare beneficiaries vary by several
factors including income and supplemental insurance coverage (with or without drug
coverage).5 Beneficiaries who do not have drug coverage generally pay the entire cost of
their prescription drugs. In 1997, beneficiaries without drug coverage spent, on average,
5 Poisal, et al., found expenditures also varied by age and gender; Steinburg, et al., found
expenditure varied by presence of a chronic disease. Health Affairs, March/April 2000.

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$520 for drugs, while those with drug coverage had total drug expenditures averaging
$826 and out-of-pocket expenditures averaging $284.
Table 2 shows Medicare beneficiaries’ average and median6 total prescription drug
expenditures by income to poverty guideline ratio and supplemental insurance. Total
prescription drug expenditures take into account the beneficiaries’ out-of-pocket expenses
as well as payments made by any third-party payers. The average total drug expenditure
of individuals with incomes at or below the federal poverty guidelines is just $50 less than
expenditures of individuals with incomes above 400% of poverty. For beneficiaries with
no supplemental insurance coverage (those with only Medicare), average total prescription
drug expenditures vary by income. Beneficiaries with incomes at or below 100% of the
federal poverty guideline who do not have supplemental insurance spend an average of
$329 for prescription drugs. Beneficiaries with incomes at or below 100% of the federal
poverty guideline who have full Medicaid benefits spend an average of $891 for
prescription drugs while beneficiaries with incomes between 100% and 135% of the
federal poverty guideline spend, on average, a total of $961 for prescription medication.
Average drug expenditures vary by supplemental insurance categories7. Beneficiaries
with either employer-based insurance or Medicaid have the largest average total drug
expenditures of all beneficiaries (employer-based: $849; Medicaid: $929). Generally,
Medicare beneficiaries entitled to full Medicaid protection have a drug benefit;
beneficiaries with employer-based coverage are more likely than beneficiaries with other
types of supplemental insurance to include a drug benefit, which may account for the
higher average total expenditure. Beneficiaries who do not have any type of supplemental
insurance coverage (Medicare only) have the lowest average total drug expenditures.
Table 3 shows average and median out-of-pocket prescription drug expenditures for
Medicare beneficiaries, by income to poverty guideline ratio and supplemental insurance.
The average out-of-pocket expenditures of all beneficiaries with incomes at or below
poverty was $247 in 1997. For beneficiaries with slightly higher incomes (between 100%
and 135% of the federal poverty guideline), the average out-of-pocket prescription drug
expenditure was 50% higher ($371). Patterns in average out-of-pocket prescription drug
expenditures by income differ depending on the supplemental insurance category.
Average out-of-pocket drug expenditures of Medicare beneficiaries vary by
supplemental insurance. Beneficiaries enrolled in Medicare managed care or in Medicaid
in 1997 had the lowest average out-of-pocket prescription drug costs. Individuals with
Medigap supplemental insurance paid more out-of-pocket, on average, than all other
beneficiaries. Medicare beneficiaries who did not have supplemental insurance paid the
entire cost of their drugs out-of-pocket.
6 Half of all beneficiaries spend more than the median value; half spend less. The median is a
measurement which is less reactive to extreme values in the data than is the average.
7 Supplemental insurance may or may not cover prescription drugs. For example, not all Medicare
managed care organizations or Medigap plans offer a prescription drug benefit. Individuals who
only have Medicare (and no supplemental insurance) do not have a drug benefit. Individuals with
Medicaid have a drug benefit; Qualified Medicare Beneficiaries and Specified Low-Income
Medicare Beneficiaries are not included in the Medicaid supplemental insurance category in this
analysis.

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Table 2. Average and Median Total Spending on Prescription Drugs
by Income to Poverty Ratio and Supplemental Insurance Coverage,
1997
Medicare
Medicare Managed
Medicaid
Total
Only
Care
Employer Medigap
*
Income <=100% of Poverty
Average spending
$707
$329
$512
$563
$653
$891
Median spending
$405
$86
$290
$437
$422
$567
Percent with Supplemental Insurance
11%
7%
7%
15%
18%
> 100% to <=135% of Poverty
Average spending
$741
$419
$693
$921
$687
$961
Median spending
$440
$137
$399
$495
$448
$671
Percent with Supplemental Insurance
11%
13%
14%
23%
6%
> 135% to <=150% of Poverty
Average spending
$799
–
–
$940
$917
–
Median spending
$430
–
–
$474
$530
–
Percent with Supplemental Insurance
9%
13%
22%
32%
2%
> 150% to <=200% of Poverty
Average spending
$724
$394
$601
$797
$702
–
Median spending
$468
$143
$448
$491
$462
–
Percent with Supplemental Insurance
8%
14%
24%
29%
1%
> 200% to <=400% of Poverty
Average spending
$759
–
$590
$866
$687
–
Median spending
$499
–
$316
$589
$469
–
Percent with Supplemental Insurance
2%
14%
34%
24%
0%
> 400% of Poverty
Average spending
$757
–
$527
$863
$697
–
Median spending
$428
–
$283
$523
$445
–
Percent with Supplemental Insurance
2%
11%
35%
26%
0%
Total
Average spending
$744
$433
$593
$849
$704
$929
Median spending
$455
$142
$339
$524
$462
$607
Percent with Supplemental Insurance
6%
12%
25%
24%
4%
Source: Table prepared by the Congressional Research Service based on analysis of data from the 1997 Medicare
Current Beneficiary Survey Cost and Use File. These estimates differ slightly from other published estimates using
the MCBS due to the inclusion or exclusion of beneficiaries who spent any part of 1997 in an institution, and the use
of poverty thresholds versus poverty guidelines.
Note: Percentages do not sum across rows because some supplemental insurance categories are not included in the
table. Percentages in the table represent the proportion of all beneficiaries within the income to poverty guideline
ratio category who have a particular type of supplemental insurance. Income categories are based on beneficiary
income as a percent of the Federal Poverty Guidelines. See footnote 4 for a discussion of poverty estimates using the
MCBS. – Sample size too small to provide reliable estimate.
* Beneficiaries with full Medicaid benefits. Qualified Medicare Beneficiaries and Specified Low-Income Medicare
Beneficiaries (QMB and SLMB) are not included in the Medicaid supplemental insurance category in this analysis.
Beneficiaries enrolled in the QMB and SLMB programs spent, on average, $884 on prescription drugs in 1997.
Source and Limitations of the Data
These estimates are based on data from the 1997 Medicare Current Beneficiary
Survey(MCBS), a longitudinal panel survey of Medicare beneficiaries. Individuals in
Puerto Rico, and those living in facilities8 were not included in this analysis.
8 According to the MCBS, a facility may be any one of the following: hospital; nursing home;
retirement home; domiciliary or personal care facility; mental health facility; institution for the
(continued...)

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Table 3. Average and Median Out-of-Pocket Spending on
Prescription Drugs by Income to Poverty Ratio and Supplemental
Insurance Coverage, 1997
Medicare
Medicare Managed
Total
Only
Care
Employer Medigap Medicaid*
Income <=100% of Poverty
Average spending
$247
$329
$177
$247
$486
$60
Median spending
$75
$86
$91
$142
$284
$14
Percent with Supplemental Insurance
11%
7%
7%
15%
18%
> 100% to <=135% of Poverty
Average spending
$371
$419
$249
$393
$534
$106
Median spending
$173
$137
$130
$176
$312
$19
Percent with Supplemental Insurance
10%
13%
14%
23%
6%
> 135% to <=150% of Poverty
Average spending
$429
–
–
$296
$702
–
Median spending
$198
–
–
$149
$422
–
Percent with Supplemental Insurance
9%
13%
22%
32%
2%
> 150% to <=200% of Poverty
Average spending
$387
$394
$225
$282
$575
–
Median spending
$205
$143
$127
$166
$360
–
Percent with Supplemental Insurance
8%
14%
24%
29%
1%
> 200% to <=400% of Poverty
Average spending
$357
–
$190
$263
$579
–
Median spending
$181
–
$112
$154
$377
–
Percent with Supplemental Insurance
2%
14%
34%
24%
0%
> 400% of Poverty
Average spending
$345
–
$167
$288
$552
–
Median spending
$167
–
$93
$144
$312
–
Percent with Supplemental Insurance
2%
11%
35%
25%
0%
Total
Average spending
$347
$433
$202
$282
$567
$80
Median spending
$165
$142
$114
$154
$355
$15
Percent with Supplemental Insurance
6%
12%
25%
24%
4%
Source: Table prepared by the Congressional Research Service based on analysis of data from the 1997 Medicare
Current Beneficiary Survey Cost and Use File by Social and Scientific Systems. These estimates differ slightly from
other published estimates produced using the MCBS due to the inclusion or exclusion of beneficiaries who had spent
any part of 1997 in an institution, and the use of poverty thresholds versus poverty guidelines.
Note: Percentages do not sum across rows because some supplemental insurance categories are not included in the
table. Percentages in the table represent the proportion of all beneficiaries within the income to poverty guideline
ratio category who have a particular type of supplemental insurance. Income categories are based on beneficiary
income as a percent of the Federal Poverty Guidelines. See footnote 4 for a discussion of poverty estimates using the
MCBS. – Sample size too small to provide reliable estimate.
* Beneficiaries with full Medicaid benefits. Qualified Medicare Beneficiaries and Specified Low-Income Medicare
Beneficiaries (QMB and SLMB) are not included in the Medicaid supplemental insurance category in this analysis.
Beneficiaries enrolled in the QMB and SLMB programs spent, on average, $190 out-of-pocket on prescription drugs
in 1997.
8 (...continued)
mentally retarded/developmentally disabled; mental health center; life care/continuing care facility;
assisted living facility; or rehabilitation facility.