Health care and prescription drug spending by seniors: spending for health care and for prescription drugs among seniors has increased over the 1980-97 period; the seniors who had insurance coverage in addition to Medicare, on average, spent more on health care and prescription drugs than those who had Medicare coverage only

Monthly Labor Review, March, 2003 by Jessie X. Fan, Deanna L. Sharpe, Goog-Soog Hong

Outcomes and indications. Results of this study indicate that, in both real dollar amounts and budget shares, the out-of-pocket costs that seniors pay for health care in general and prescription drugs in particular have increased, except for seniors with either no additional health insurance other than Medicare or seniors with HMO insurance in addition to Medicare. Other than those with HMOs, the seniors who had insurance coverage in addition to Medicare, on average, spent more on health care and prescription drugs than those who had Medicare coverage only. This fact suggests possible adverse selection, with those who perceive a need for additional coverage purchasing and utilizing the provisions of such coverage.

The increasing use of HMO plans and commercial Medicare supplements and the decreasing use of other commercial health insurance or Blue Cross/Blue Shield might be due to a changing health care market during the years examined in this study. Rising health care costs in the 1980s encouraged growth of HMO plans. These plans incorporated the cost of care in the premium dollar paid, emphasized preventative care, and restricted access to more expensive specialists. Typically, out-of-pocket costs consisted of the premium payment and nominal co-pay for each physician visit. Other commercial health insurance and Blue Cross/Blue Shield policies in contrast, required the consumer to pay for health care out-of-pocket first and then would reimburse dollars spent according to a benefit schedule. Thus, the HMO plans could not only limit out-of-pocket costs per physician visit, but also could make such costs more predictable, which is important to seniors living on a relatively fixed income.

Overall, our results indicate that using a managed care approach to meet the prescription drug needs of seniors can help keep costs down. However, whether such an approach is the most cost-effective and whether it is capable of maximizing social welfare is open to debate.

Limitations. The CE survey provides data on household level out-of-pocket spending on health care over a broad span of time. In this respect, it is a good data set to use to examine trends in health care spending. However, the CE survey gives no insight into the health condition of survey respondents. Because health condition is certainly an important factor in health care spending, this limitation can reduce the explanatory power of the multivariate models in this study. Also, the CE survey gives no information on the specific provisions of health insurance policies held by a consumer unit. And, expenditure information is collected at the household level instead of the individual level. Whereas other sources of data, such as the Medical Expenditure Panel Survey (MEPS), (30) report greater detail about respondents' health conditions and specific health insurance coverage, the data are available for only limited points in time.

FUTURE RESEARCH CAN EXPLORE the possibility of combining the CE with other data sets to get more information. For example, the National Health Interview Survey (NHIS) or the MEPS can be used to estimate health conditions and then the estimated health status can be entered into the CE analysis. In addition, when more recent CE data become available, this study should be expanded in order to provide more up to date information.