NCPA - National Center for Policy Analysis

Expanding Medicaid Drug Coverage

March 13, 2001

Maine and Vermont are setting up programs allowing many people ineligible for Medicaid to get Medicaid prescription drug coverage. The idea is to lower prescription drug prices for low-income consumers, especially seniors without drug coverage.

Individuals added under the programs -- made possible by federal waivers of Medicaid eligibility requirements -- would pay for the prescriptions themselves, but would get a pharmacy discount of about 18 percent on Medicaid-approved drugs. The drug companies would rebate that amount to Medicaid, which would reimburse the pharmacy.

For regular Medicaid beneficiaries, state Medicaid programs pay for drugs, and the drug companies are required by federal law to rebate at least 18 percent of the price to Medicaid.

Thus the benefit would be subsidized by drug companies rather than taxpayers. But the programs will do little to help those in most need. For instance, the Vermont program covers individuals with incomes at or below 300 percent of the federal poverty level (about $26,800 for an individual).

  • As a group, seniors at that income level without drug coverage spend 3 percent or less of their income on prescription drugs, and non-seniors spend only half that much.
  • However, chronically ill seniors at that income level spend nearly 30 percent of their income on drugs.
  • A senior at the federal poverty level of $8,959 and spending 30 percent of his or her income or $2,688 would receive only about $483 in discounts.

While offering little help to those most in need, such programs will attract people who would otherwise purchase private coverage, and thus crowd out private prescription drug coverage. Indeed, between 50 percent and 75 percent of the increase in Medicaid coverage between 1987 and 1992 was associated with a reduction in private insurance coverage, according to a study by the National Bureau of Economic Research.

Source: Robert Goldberg (NCPA senior fellow), "Medicaid Waivers: Wrong Cure for High Drug Prices," Brief Analysis No. 351, March 13, 2001, National Center for Policy Analysis.


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