NCPA - National Center for Policy Analysis


June 9, 2006

Capping Medicare drug benefits results in more patient visits to emergency rooms and hospitals, offsetting savings from lower spending on prescription medications, according to a study published in the New England Journal of Medicine.

Researchers found that a cap on drug benefits lowered pharmacy costs by 31 percent. But total medical costs, including drugs, were roughly the same.

They examined the cost and clinical outcomes of 157,275 Kaiser (a health insurance provider) beneficiaries with annual drug benefit caps set at $1,000 to 41,904 who had unlimited benefits because of supplemental coverage from their employers, and found that patients with drug caps had:

  • 9 percent higher rate of emergency-room visits.
  • 13 percent higher rate of non-elective hospitalizations.
  • 22 percent higher death rate.

The researchers also found that subscribers with capped drug costs were less likely to take drugs to lower blood pressure and cholesterol and to control diabetes -- chronic conditions for which medication can offer cost-effective drugs to prevent costly health problems later.

Kenneth E. Thorpe, a professor of health policy at Emory University, said the research shows cost saving through coverage caps is especially wrongheaded for treating chronic diseases. In terms of Medicare Part D, "we may very well be penny-wise and pound-foolish here," he said.

But Peter Ashkenaz, a Medicare spokesman, said Part D doesn't completely cut off coverage after $1,000 and is a vast improvement for most seniors, who previously had "no coverage whatsoever" for prescription drugs under the standard Medicare plan.

Source: John Hechinger, "Medicare Drug-Cap Savings May Be Offset by Hospital Visits," Wall Street Journal, June 1, 2006

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