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Ronfar's avatar

All that's available without shelling out cash is a short abstract that's a little bit confusing.

The introduction of Medicare Part D has generated interest in the cost of providing drug coverage to the elderly. Of paramount importance -- often unaccounted for in budget estimates -- are the salutary effects that increased prescription drug use might have on other Medicare spending. This paper uses longitudinal data from the Medicare Current Beneficiary Survey (MCBS) to estimate how prescription drug benefits affect Medicare spending. We compare spending and service use for Medigap enrollees with and without drug coverage. Because of concerns about selection, we use variation in supply-side regulations of the individual insurance market -- including guaranteed issue and community rating -- as instruments for prescription drug coverage. We employ a discrete factor model to control for individual-level heterogeneity that might induce bias in the effects of drug coverage. Medigap prescription drug coverage increases drug spending by $170 or 22%, and reduces Medicare Part A spending by $350 or 13% (in 2000 dollars). Medigap prescription drug coverage reduces Medicare Part B spending, but the estimates are not statistically significant. Overall, a $1 increase in prescription drug spending is associated with a $2.06 reduction in Medicare spending. Furthermore, the substitution effect decreases as income rises, and thus provides support for the low-income assistance program of Medicare Part D.

I'm not quite sure what they're saying.

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Overcoming Bias Commenter's avatar

Doug S I understood what you said but perhaps my assumptions are wrong.

My assumptions:1.Before Medicare started paying for the drugs the patients, who would have had to pay for the drugs themselves, chose not buy them.2.They did not buy the drugs for themselves because they did not think that the benefits yielded by the drugs was worth the cost of the drugs. Here is my assumption may be wrong, I assume that in there cost benefit annalists they were not reducing the value of the drugs because if they got the disease that drugs prevent that Medicare would cover a procedure to fix it anyway. This is I guess a weak assumption.

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