Medicare Part D and the Financial Protection of the Elderly

Gary V. Engelhardt, Jonathan Gruber

NBER Working Paper No. 16155
Issued in July 2010
NBER Program(s):   AG   HC   HE   PE

We examine the impact of the expansion of public prescription drug insurance coverage from Medicare Part D on the elderly and find evidence of substantial crowd-out. Using detailed data from the 2002-7 waves of the Medical Expenditure Panel Survey (MEPS), we estimate that the extension of Part D benefits resulted in 80% crowd-out of both prescription drug insurance coverage and prescription drug expenditures of those 65 and older. Part D is associated with only modest 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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