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Impact of Multitiered Copayments on the Use and Cost of Prescription Drugs among Medicare Beneficiaries

Objectives. To assess the impact of multitiered copayments on the cost and use of prescription drugs among Medicare beneficiaries.

Data Sources. Marketscan 2002 Medicare Supplemental and Coordination of Benefits database and Plan Benefit Design database.

Study Design. The study uses cross-sectional variation in copayment structures among firms with a self-insured retiree health plan to measure the impact of number of copayment tiers on total and enrollee drug payments, number of prescriptions filled, and generic substitution. The study also assesses the effect of enrollee cost sharing on the cost and use of prescription medications for the long-term treatment of chronic conditions.

Data Collection Methods. We linked plan enrollment and benefit data with medical and drug claims for 352,760 Medicare beneficiaries with employer-sponsored retiree drug coverage.

Primary Findings. Medicare beneficiaries in three-tiered plans had 14.3 percent lower total drug expenditures, 14.6 percent fewer prescriptions filled, and 57.6 percent higher out-of-pocket costs than individuals in lower tiered plans. They also had fewer brand name and generic prescriptions filled, and a higher percentage of generics. The estimated price elasticity of demand for prescription drug expenditures was -0.23. Finally, for maintenance medications used for the long-term treatment of chronic conditions, members in three-tiered plans had 11.5 percent fewer prescriptions filled.

Conclusions. Higher tiered drug plans reduce overall expenditures and the number of prescriptions purchased by Medicare beneficiaries. Beneficiaries are less responsive to cost sharing incentives when using drugs to treat chronic conditions.

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