PHP72 - DOWNSTREAM MEDICAL COST OFFSETS IN MEDICARE FROM PRESCRIPTION DRUG USE IN EMPLOYER-SPONSORED INSURANCE

Abstract

To estimate the impact of prescription drug utilization during pre-Medicare coverage years under employer-sponsored insurance on later medical spending in Medicare. Individuals found in both the Commercial and Medicare Supplemental Marketscan® files were selected. Study subjects were required to be 64 years old or younger at baseline and continuously eligible throughout the entire 5-year study period 2008-2012. The resulting panel dataset was comprised of 133,412 individuals who aged into Medicare, each with 5 annual observations. Conducted was an econometric analysis of the impact of aggregate prescription drug utilization on total, inpatient, and outpatient medical costs. Individual fixed effects Poisson models of these cost measures were estimated as a function of 1-, 2-, and 3-year lagged values of prescription drug utilization—measured as the number of days’ supply-adjusted fills. All models also included a robust set of controls. Among individuals covered by Medicare (ages 65-68), a 1 percent increase in prescription drug utilization 1 year prior was associated with a 0.363 percent decrease in total medical costs. Notably, medication use 2 years prior prompted a 0.123 percent decrease in total medical costs, and these offsets still persisted after 3 years (0.059 percent decrease). Effects were more pronounced for inpatient relative to outpatient costs. The pattern of declining, yet persistent, medical cost offsets for at least 3 years emerged for all three measures of medical costs. Pharmaceutical use is expected to lower spending on other medical services. The duration of these offsets may span multiple payers. Retirees entering Medicare who are healthier due to prior medication use are less costly. Indeed, the Medicare program is exposed to the consequences of prescription drug use 3 years prior to coverage. The evaluation of policies that could alter medication use among the near retired (such as the “Cadillac Tax”) should consider this important finding.