Medicare Prescription Drug Discount Card Program Could Save
All Seniors Without Drug Coverage A Total Of $1 Billion

Health Affairs Article Says Average Discount Represents
Modest Savings Over Retail Prices, But Aggregate Savings Are Uncertain

BETHESDA, MD — Medicare’s prescription drug discount card program could save seniors without any other drug coverage an average of 17.4 percent—or as much as $1 billion a year in total—in out-of-pocket costs, according to an article published today on the Health Affairs Web site.

Juliette Cubanski, a Harvard University health policy doctoral candidate, and two colleagues analyzed drug pricing and use data to estimate individual and aggregate savings resulting from the discounts. The Medicare discount card program is scheduled to take effect in mid-2004.

Their analysis estimates savings of about $117 per noncovered beneficiary out of total out-of-pocket spending of $672 in 2000. Of that, savings from generic drugs will be higher (41 percent) than for brand-name drugs (14 percent), but brand-name drugs will account for a bigger share of the total savings ($83 of the total $117 in savings). Sicker beneficiaries will see slightly higher savings in percentage terms ($176 out of $999 in spending, or 17.6 percent) than the healthiest ($62 out of $358, or 17.3 percent).

The authors also estimate that poorer beneficiaries will save somewhat more than wealthier beneficiaries—17.7 percent vs. 16.7 percent—even though their utilization is about the same—filling roughly 18 prescriptions a year. The authors suggest that this will be the case because low-income beneficiaries tend to use a less costly mix of drugs.

In relative terms, the lowest-income seniors will experience the greatest benefit. Their average savings will represent 1.8 percent of income, compared with 0.2 percent of income for the wealthiest beneficiaries. Lower-income seniors also will benefit from an annual $600 subsidy that isn’t included in the savings estimates.

“Our results indicate that prescription drug discount cards could modestly reduce Medicare beneficiaries’ out-of-pocket drug spending before expanded Medicare drug coverage begins in 2006,” Cubanski says. “However, the wide variation in individual and aggregate savings that we estimated demonstrates the uncertainty in assessing the overall value of the program to Medicare beneficiaries.
“Those who now lack prescription drug coverage and who incur large out-of-pocket costs likely will see some relief but still face sizable out-of-pocket costs. Moreover, discount card savings will not completely alleviate the burden of drug spending for heavy users of medication, especially higher-priced brand-name drugs,” she says.

Aggregate savings from the drug discount program are more uncertain, the authors write, noting that it will depend on program enrollment and the size of the discounts offered. If the lowest estimates of discounts and enrollment are used, beneficiaries would see only $74 million in savings. Under alternative assumptions, savings of $1 billion could be achieved if 75 percent of noncovered seniors enroll and receive an average discount of 23 percent.

“The wide range in these numbers indicates that any single estimate of the potential economic impact of the Medicare-approved discount card program is subject to substantial uncertainty, even after actual program enrollment figures are known,” Cubanski says.
Cubanski’s coauthors are Richard Frank, a health economics professor at Harvard Medical School, and Arnold Epstein, a professor of health policy and management at Harvard’s public health school.

The article can be read at http://content.healthaffairs.org/cgi/content/abstract/hlthaff.w4.198.

The article was commissioned by the Henry J. Kaiser Family Foundation.

Health Affairs, published by Project HOPE, is a bimonthly multidisciplinary journal devoted to publishing the leading edge in health policy thought and research.

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©2004 Project HOPE–The People-to-People Health Foundation, Inc.