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Medicare Part D and the Financial Protection of the Elderly

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  • Gary V. Engelhardt
  • Jonathan Gruber

Abstract

We examine the impact of the expansion of public prescription drug insurance coverage from Medicare Part D on the elderly and find evidence of substantial crowd-out. Using detailed data from the 2002-7 waves of the Medical Expenditure Panel Survey (MEPS), we estimate that the extension of Part D benefits resulted in 80% crowd-out of both prescription drug insurance coverage and prescription drug expenditures of those 65 and older. Part D is associated with only modest reductions in out-of-pocket spending. This suggests that the welfare gain from protecting the elderly from out-of-pocket spending risk through Part D has been small.

Suggested Citation

  • Gary V. Engelhardt & Jonathan Gruber, 2010. "Medicare Part D and the Financial Protection of the Elderly," NBER Working Papers 16155, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:16155
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    References listed on IDEAS

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    1. Finkelstein, Amy & McKnight, Robin, 2008. "What did Medicare do? The initial impact of Medicare on mortality and out of pocket medical spending," Journal of Public Economics, Elsevier, vol. 92(7), pages 1644-1668, July.
    2. Martin Feldstein & Jonathan Gruber, 1995. "A Major Risk Approach to Health Insurance Reform," NBER Chapters, in: Tax Policy and the Economy, Volume 9, pages 103-130, National Bureau of Economic Research, Inc.
    3. Feenberg, Daniel & Skinner, Jonathan, 1994. "The Risk and Duration of Catastrophic Health Care Expenditures," The Review of Economics and Statistics, MIT Press, vol. 76(4), pages 633-647, November.
    4. Helen Levy & David R. Weir, 2010. "Take-up of Medicare Part D: Results From the Health and Retirement Study," The Journals of Gerontology: Series B, The Gerontological Society of America, vol. 65(4), pages 492-501.
    5. Victor Chernozhukov & Christian Hansen, 2005. "An IV Model of Quantile Treatment Effects," Econometrica, Econometric Society, vol. 73(1), pages 245-261, January.
    6. Jason T. Abaluck & Jonathan Gruber, 2009. "Choice Inconsistencies Among the Elderly: Evidence from Plan Choice in the Medicare Part D Program," NBER Working Papers 14759, National Bureau of Economic Research, Inc.
    7. Jonathan Gruber & Kosali Simon, 2007. "Crowd-Out Ten Years Later: Have Recent Public Insurance Expansions Crowded Out Private Health Insurance?," NBER Working Papers 12858, National Bureau of Economic Research, Inc.
    8. Mark Duggan & Fiona Scott Morton, 2010. "The Effect of Medicare Part D on Pharmaceutical Prices and Utilization," American Economic Review, American Economic Association, vol. 100(1), pages 590-607, March.
    9. Jonathan D. Ketcham & Kosali Simon, 2008. "Medicare Part D's Effects on Elderly Drug Costs and Utilization," NBER Working Papers 14326, National Bureau of Economic Research, Inc.
    10. Amitabh Chandra & Jonathan Gruber & Robin McKnight, 2007. "Patient Cost-Sharing, Hospitalization Offsets, and the Design of Optimal Health Insurance for the Elderly," NBER Working Papers 12972, National Bureau of Economic Research, Inc.
    11. Gruber, Jonathan & Simon, Kosali, 2008. "Crowd-out 10 years later: Have recent public insurance expansions crowded out private health insurance?," Journal of Health Economics, Elsevier, vol. 27(2), pages 201-217, March.
    12. Eric French & John Bailey Jones, 2004. "On the distribution and dynamics of health care costs," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(6), pages 705-721.
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    Cited by:

    1. Ed Westerhout & Kees Folmer, 2013. "Why it may hurt to be insured: the effects of capping coinsurance payments," CPB Discussion Paper 239, CPB Netherlands Bureau for Economic Policy Analysis.
    2. Aurélie Pierre & Florence Jusot & Denis Raynaud & Carine Franc, 2018. "Généralisation de la complémentaire santé d’entreprise. Une évaluation ex ante des gains et des pertes de bien-être," Revue économique, Presses de Sciences-Po, vol. 69(3), pages 407-441.
    3. Darius Lakdawalla & Wesley Yin, 2015. "Insurers’ Negotiating Leverage and the External Effects of Medicare Part D," The Review of Economics and Statistics, MIT Press, vol. 97(2), pages 314-331, May.
    4. Earl L. Grinols & Peri Silva, 2012. "Intervention Efficiency, Incentive Symmetry, and Information," Development Working Papers 334, Centro Studi Luca d'Agliano, University of Milano, revised 16 Jul 2012.
    5. Sujoy Chakravarty, 2016. "Much ado about nothing? The financial impact of physician-owned specialty hospitals," International Journal of Health Economics and Management, Springer, vol. 16(2), pages 103-131, June.
    6. Dan Shane; & Pravin Trivedi;, 2012. "What Drives Differences in Health Care Demand? The Role of Health Insurance and Selection Bias," Health, Econometrics and Data Group (HEDG) Working Papers 12/09, HEDG, c/o Department of Economics, University of York.

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    More about this item

    JEL classification:

    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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