Medicare Part D and the Financial Protection of the Elderly

Gary V. Engelhardt Jonathan Gruber

WP#2009-24

Abstract

We examine the impact of the expansion of public prescription prescription-drug insurance coverage from Medicare Part D has had on the elderly and find evidence of substantial crowd-out.  Using detailed data from the 2002-6 waves of the Medical Expenditure Panel Survey (MEPS), we estimate that the extension of Part D benefits resulted in 75% crowd-out of prescription drug insurance coverage and 33%-50% crowd-out of prescription drug expenditures of those 65 and older.  Part D is associated with relatively small 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.