Medicare Part D and the Financial Protection of the Elderly

by Gary V. Engelhardt and Jonathan Gruber

October 2009

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.

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Gary V. Engelhardt is an associate professor of economics at Syracuse University and a senior research associate at the Center for Policy Research.  Jonathan Gruber is a professor of economics at MIT. Jonathan Gruber is a professor of economics at MIT. The authors are grateful to John Graves for excellent research assistance.  Gruber acknowledges financial support from the National Institute on Aging.
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