Issue Brief
2006-05
Health Economics Program
August 2006
Medicare Supplemental Coverage and
and
Prescription Drug Use, 2004
2004
Medicare is a federal health insurance program that
provides coverage for the elderly and some disabled
people under age 65. In 2004, roughly 686,000
Minnesotans were enrolled in Medicare, representing
approximately 13% of the state population.1
Compared to many private insurance policies,
Medicare has relatively high deductibles and
coinsurance and does not provide coverage for some
health care services. Consequently, many Medicare
beneficiaries obtain additional health insurance to pay
for the cost sharing and services that Medicare does
not cover.
This issue brief uses data from a 2004 survey of
Minnesota households to describe Medicare
beneficiaries’ sources of supplemental insurance
coverage and prescription drug coverage, with
comparisons to national data.2 It also provides a
baseline for evaluating the impact of the 2003
Medicare Modernization Act on Minnesota’s non­
institutional Medicare beneficiaries and includes
information on prescription drug utilization and
spending by Minnesota Medicare beneficiaries.
Table 1
Characteristics of Non-Institutional Medicare
Beneficiaries, Minnesota and US, 2004
Minnesota
US
13.9%
41.3%
31.1%
13.7%
100.0%
15.4%
43.8%
30.6%
10.2%
100.0%
42.0%
58.0%
100.0%
44.7%
55.3%
100.0%
59.3%
40.7%
100.0%
53.0%
47.0%
100.0%
92.7%
7.3%
100.0%
78.1%
21.9%
100.0%
19.3%
36.6%
26.0%
18.1%
100.0%
28.4%
30.4%
21.8%
19.4%
100.0%
13.2%
26.4%
19.7%
14.9%
25.8%
100.0%
20.2%
28.0%
20.0%
12.6%
19.2%
100.0%
63.9%
36.1%
100.0%
54.7%
45.3%
100.0%
76.4%
23.6%
100.0%
NA
NA
14.1%
27.4%
31.7%
18.3%
8.5%
100.0%
15.3%
25.4%
31.2%
18.7%
9.4%
100.0%
Age
0-64
65-74
75-84
85+
Gender
Male
Female
Marital Status
Married
Not Married
Race/Ethnicity
White only, non-Hispanic
Non-White
Educational Status
Less than high school
High school graduate
Some college/tech school
College graduate or more
Household Income
$0-$10,000
$10,001-$20,000
$20,001-$30,000
$30,001-$40,000
$40,000+
Geography
Characteristics of Medicare
Beneficiaries
Demographically, Medicare beneficiaries in Minnesota
differ in a number of ways from the national average.
Table 1 shows that U.S. and Minnesota beneficiaries
are similar in terms of gender and health status.
Metropolitan Area (MSA counties)
Rural Area
Greater Minnesota
Twin Cities
Health Status
Excellent
Very Good
Good
Fair
Poor
Sources: 2004 Minnesota Health Access Survey.
2004 Medicare Current Beneficiary Survey (MCBS), "Characteristics
and Perceptions," preliminary estimates.
Minnesota Department of Health
Medicare Supplemental Coverage and Prescription Drug Use, 2004
The demographic differences between Minnesota and
U. S. beneficiaries include:
�
Minnesota beneficiaries are more likely to be
older;3
�
Minnesota beneficiaries are more likely to be
married;
�
Minnesota beneficiaries are more likely to be
White;
�
In general, Minnesota beneficiaries have
higher levels of education;
�
In general, Minnesota beneficiaries have
higher incomes; and
�
Minnesota beneficiaries are more likely to live
in a rural area.
Medicare - The Basics:
Medicare consists of four parts: Part A, the hospital insurance (HI) component, Part B, the supplemental medical insurance
(SMI) component, Part C, the Medicare Advantage (private health plans) component and now Part D, the outpatient
prescription drug component.
�
Part A covers inpatient hospital care, inpatient skilled nursing care, home health care, and hospice care. Part A is
financed primarily by a payroll tax paid by both employers and employees: however, beneficiaries are required to pay
various deductibles and coinsurance. Elderly beneficiaries age 65 and older are automatically enrolled in Part A if
they receive Social Security benefits or Railroad Retirement cash benefits.
�
Part B pays for physician services, outpatient hospital services, and other health services such as laboratory and
diagnostic tests. Part B has an annual deductible ($124 in 2006) and 20% co-insurance for qualified medical
services. Beneficiary premiums ($88.50 per month in 2006) and general revenue finance part B. Part B is optional
but nearly 95% of all beneficiaries in Minnesota who are eligible are enrolled in Part B. Although most beneficiaries
are enrolled in Part A and B, some obtain supplemental coverage to pay for deductibles and coinsurance as well as
for medical services not covered by Part A or B. Part A and B provide limited or no coverage for dental care,
eyeglasses, hearing aids, hearing exams, and until the Medicare Modernization Act of 2003 became effective,
Medicare provided little or no coverage for routine physical exams, preventive care, or outpatient prescription drugs.
�
Beneficiaries can enroll in a private managed care plan that provides Medicare Part A and Part B services, plus
additional benefits, through Part C or Medicare Advantage (MA) plans. If beneficiaries are not enrolled in a Part C
plan, they can receive supplemental benefits through a Medigap plan, an employer provided plan, or Medical
Assistance if they meet the eligibility requirements. In addition to the Part B premium, beneficiaries generally pay
an additional premium for the added (supplemental) Part C benefits. In general, these plans require that
beneficiaries use a specific network of providers.
�
Part D was enacted in 2003 with the passage of the Medicare Modernization Act and became effective on January 1,
2006. Under Part D, prescription drug benefits are provided by private prescription drug only (PDP) plans,
Medicare Advantage (MA) plans, or creditable employer coverage plans. Premiums and cost sharing vary by plan,
but all basic plans must provide actuarially equivalent benefits. Low-income beneficiaries can receive subsidies to
enroll in Part D plans. Prior to 2006, beneficiaries could obtain prescription drug coverage through a Part C plan, a
Medigap plan, an employer provided plan, Medical Assistance, or a state drug plan. As of 2006, new enrollment in
Medigap plans with prescription drug coverage is not allowed.
Sources: The Centers for Medicare and Medicaid Services and the Henry J. Kaiser Family Foundation.
2
Medicare Supplemental Coverage and Prescription Drug Use, 2004
Supplemental Coverage
One explanation for many of these differences is that
more non-institutional Medicare beneficiaries in
Minnesota compared to the national average live in
rural areas (see Table 1). As shown in Figure 2, these
rural beneficiaries are less likely to have supplemental
coverage through an employer or individually
purchased Medicare HMO, and more likely to have
individually purchased Medigap coverage than urban
Minnesota beneficiaries.
Nationwide, Medicare pays for about 54% of the
total personal health care expenditures of non­
institutional Medicare beneficiaries.4 As a result, most
Medicare beneficiaries obtain additional coverage
through the private market or government programs
to pay for the services and costs that Medicare does
not cover. In the U.S. and Minnesota, beneficiaries
are equally likely to lack supplemental coverage.
However, for those with supplemental coverage, the
sources of that coverage are different. The different
sources of coverage between U.S. and Minnesota
beneficiaries are similar to findings from an earlier
study.5 Figure 1 highlights the following differences
between U.S. and Minnesota beneficiaries:
�
�
�
�
Figure 2
Sources of Supplemental Insurance Coverage For
Minnesota Non-Institutional Medicare
Beneficiaries in Metropolitan and Rural
Counties, 2004
14.4%
Minnesota beneficiaries are less likely to have
coverage through a government program;
28.3%
Minnesota beneficiaries are more likely to
have an individually purchased Medigap
policy; and
29.7%
Minnesota beneficiaries are less likely to have
coverage through a Medicare HMO.6
Public
Figure 1
Sources of Supplemental Insurance Coverage for
Non-Institutional Medicare Beneficiaries,
Minnesota and US, 2004
15.0%
10.6%
13.0%
33.6%
Public
16.6%
Minnesota
US
Employer
Medigap
Medicare HMO
19.5%*
13.1%
13.5%
Metropolitan Area
Rural Area
Employer
Medigap
Medicare HMO
Medicare Only
There are two main reasons for the differences in
supplemental coverage between urban and rural areas.
First, metropolitan areas generally have more large
employers than rural areas and large employers are
more likely to offer retiree health benefits than small
employers.7 Second, there is less enrollment in
Medicare HMO plans in rural areas in Minnesota
compared to metropolitan areas; reasons for this
difference likely include lower payment rates from
Medicare and lower HMO market share in rural areas
generally.8
26.1%
13.2%
45.8%*
*Indicates significant difference at 95% level from metropolitan area
beneficiaries.
Source: 2004 Minnesota Health Access Survey
21.8%
34.6%
3.7%*
14.5%
Minnesota beneficiaries are less likely to have
supplemental coverage through a current or
previous employer;
15.5%
17.5%
One of the main explanations for lower public
coverage in Minnesota is that a higher percentage of
Medicare beneficiaries enrolled in Medicaid are
Medicare Only
Sources: 2004 Minnesota Health Access Survey
2004 Medicare Current Beneficiary Survey (MCBS), "Characteristics
and Perceptions", preliminary estimates.
3
Medicare Supplemental Coverage and Prescription Drug Use, 2004
institutionalized in Minnesota compared to the
national average.9 Because the data presented here
only represents non-institutional Medicare
beneficiaries, a greater percentage of Minnesota’s
Medicare beneficiaries with Medical Assistance are
excluded from the survey data compared to at the
national level.
paying higher premiums on average for their
supplemental coverage. In addition, aside from
differences in the sources of supplemental coverage,
Minnesota beneficiaries enrolled in Medicare HMOs
are paying more for coverage than the national
average due to differences in Medicare payment
rates.14 Minnesota beneficiaries are also more likely to
be at risk for higher out-of-pocket costs because fewer
beneficiaries in Minnesota have coverage for
prescription drugs (see Figure 3) or additional services
such as preventive, vision, and dental care often
provided by employer and Medicare HMO plans.15
The type of supplemental coverage that beneficiaries
have is of interest because it has an impact on the
level of beneficiary spending and the types of health
care services that are covered for beneficiaries.
Nationally, beneficiaries with supplemental coverage
through a Medigap plan generally pay more in
premiums and out-of-pocket than beneficiaries with
employer coverage or those enrolled in Medicare
HMO plans.10 Nearly all beneficiaries with employer
coverage have coverage for prescription drugs and in
2005 beneficiaries with employer coverage paid an
average premium of $128 per month.11 In
comparison, beneficiaries with Medigap coverage that
includes coverage for prescription drugs paid more
than twice this amount on average in monthly
premiums in 2005.12 On average, premiums for
Medicare HMO plans that provide prescription drug
coverage are lower than Medigap premiums and
Medicare HMO plans may also include additional
benefits such as coverage for preventive, vision, and
dental care.13 The higher premium cost of Medigap
plans with prescription drug coverage in comparison
to employer and Medicare HMO plans is likely a key
reason why many beneficiaries choose to purchase
Medigap plans that do not provide coverage for
prescription drugs (see Figure 4).
Characteristics of Minnesota Beneficiaries
Without Supplemental Coverage
As shown in Figure 1, 15% of Minnesota and U.S.
beneficiaries do not have coverage to supplement
Medicare. Beneficiaries who lack additional insurance
are not covered at all for some health care goods and
services such as prescription drugs, and they are
responsible for unlimited amounts of Medicare cost
sharing. Demographically, there are differences
between all non-institutionalized Minnesota Medicare
beneficiaries and those without supplementary
coverage. Table 2 highlights the following differences
between Minnesota’s Medicare beneficiaries with and
without supplemental coverage:
With the differences in supplemental coverage
between Minnesota and the U.S., it is likely that
beneficiaries in Minnesota pay more for supplemental
coverage and realize a greater risk of higher out-of­
pocket costs than the national average. Because
Minnesota has fewer beneficiaries enrolled in lower
cost employer-sponsored and Medicare HMO plans
and more enrollment in higher cost Medigap plans
than nationally, Minnesota beneficiaries are likely
4
�
In general, Medicare beneficiaries without
coverage are younger;
�
Medicare beneficiaries without coverage are
less likely to be married;
�
In general, Medicare beneficiaries without
coverage have lower levels of education;
�
In general, Medicare beneficiaries without
coverage have lower incomes; and
�
Medicare beneficiaries without coverage are
less likely to reside in the Twin Cities.
Medicare Supplemental Coverage and Prescription Drug Use, 2004
programs could improve access to health care and
reduce out-of-pocket spending for beneficiaries
without supplemental coverage. Medicare beneficiaries
without supplemental coverage are almost twice as
likely to lack a usual source of care or delay care due
to cost compared to those with supplemental coverage
through Medicaid.17
Table 2
Characteristics of Non-Institutional Medicare
Beneficiaries Without Supplemental Coverage in
Minnesota, 2004
MN Beneficiaries
Without Coverage
All MN
Beneficiaries
Age
0-64
65-74
75-84
85+
28.9%
31.2%
25.4%
14.5%
100.0%
13.9%
41.3%
31.1%
13.7%
100.0%
43.9%
56.1%
100.0%
42.0%
58.0%
100.0%
49.7%
50.3%
100.0%
59.3%
40.7%
100.0%
89.9%
10.1%
100.0%
92.7%
7.3%
100.0%
24.6%
33.0%
31.8%
10.6%
100.0%
19.3%
36.6%
26.0%
18.1%
100.0%
16.8%
34.1%
25.4%
12.9%
10.8%
100.0%
14.4%
28.0%
23.5%
13.1%
21.0%
100.0%
Metropolitan Area (MSA counties)
Rural Area
59.3%
40.7%
100.0%
63.9%
36.1%
100.0%
Greater Minnesota
Twin Cities
62.9%
37.1%
100.0%
54.7%
45.3%
100.0%
13.5%
25.8%
30.9%
20.8%
9.0%
100.0%
14.1%
27.4%
31.7%
18.3%
8.5%
100.0%
Gender
Male
Female
Prescription Drug Coverage
There is one large difference between the pattern of
supplemental coverage and prescription drug coverage
for Minnesota and the United States. Minnesota non­
institutional beneficiaries are just as likely to have
Medicare supplemental coverage as the national
average (84.5% and 85.0%), but as shown in Figure
3, they are much less likely to have prescription drug
coverage (56.2% and 64.0%). The primary reason for
this difference is that Minnesota beneficiaries have
lower rates of supplemental coverage through
government programs or employer plans where
coverage for prescription drugs is more likely, and
higher rates of Medigap coverage where prescription
drug coverage is less likely.
Marital Status
Married
Not Married
Race/Ethnicity
White only, non-Hispanic
Non-White
Educational Status
Less than high school
High school graduate
Some college/tech school
College graduate or more
Household Income as %
of Poverty Guidelines
0 to 100%
101 to 200%
201 to 300%
301 to 400%
401%+
Geography
Figure 3
Sources of Prescription Drug Coverage for Non-
Institutional Medicare Beneficiaries,
Minnesota and US
Health Status
Excellent
Very Good
Good
Fair
Poor
36.0%
43.8%
Bold indicates significant difference at 95% level from all Minnesota
beneficiaries.
Source: 2004 Minnesota Health Access Survey.
15.2%
5.6%
6.7%
16.1%
Based on income alone, roughly 29% of non­
institutional Medicare beneficiaries without
supplemental coverage in Minnesota are potentially
eligible for some level of supplemental coverage
through public programs. These public programs
include Medical Assistance, the Qualified Medicare
Beneficiary program, the Specified Low-Income
Medicare Beneficiary program and the Qualified
Individual program.16 Enrollment in one of these
29.2%
22.8%
Public
11.7%
13.0%
Minnesota
US
Employer
Medigap
Medicare HMO
None
Sources: 2004 Minnesota Health Access Survey.
Laschober, Mary, "Trends in Medicare Supplemental Insurance and
Prescription Drug Benefits”, 2001. Prepared for The Henry J. Kaiser
Family Foundation, June 2004.
5
Medicare Supplemental Coverage and Prescription Drug Use, 2004
Differences in prescription drug coverage between
Medicare beneficiaries in Minnesota and the United
States follow the same pattern as the differences in
supplemental coverage between Minnesota and the
United States.18 Non-institutional Medicare
beneficiaries in Minnesota are more likely to have
prescription drug coverage through Medigap policies
and less likely to have prescription drug coverage
through Medicare HMO plans, employer-sponsored
coverage or public coverage than their national
counterparts (see Figure 3).
beneficiaries who purchase coverage that includes
prescription drugs.19 An explanation for why
Minnesota beneficiaries enrolled in Medigap plans are
more likely to have prescription drug coverage than
beneficiaries nationally is that Minnesota
beneficiaries, and rural beneficiaries especially (see
Figure 5), have less access to affordable sources of
supplemental coverage and prescription drug coverage
through employer plans or Medicare HMOs and may
find that a Medigap plan is their only option for
supplemental coverage and prescription drug
coverage.
Figure 4
Figure 5
Beneficiaries with Prescription Drug Coverage,
by Type of Supplemental Insurance Coverage
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
87%
88%
89%
84%
52%
Sources of Prescription Drug Coverage for
Minnesota Non-Institutional Medicare
Beneficiaries in Metropolitan and Rural
Counties, 2004
92%
47%
29%
Employer
Medicare HMO
MN
Medigap
41.0%
Public
48.8%*
7.7%
1.8%*
13.8%
US
20.2%*
25.3%
Sources: 2004 Minnesota Health Access Survey.
Laschober, Mary, "Trends in Medicare Supplemental Insurance and
Prescription Drug Benefits, 2001. Prepared for The Henry J. Kaiser
Family Foundation, June 2004.
18.2%*
As shown in Figure 4, supplemental coverage for
prescription drugs is highest for employer plans,
public coverage and Medicare HMOs at the national
level. However, national prescription drug coverage
patterns do not exactly mirror those in Minnesota.
Although public and employer-sponsored prescription
drug coverage in Minnesota is similar to coverage at
the national level, prescription drug coverage through
Medigap plans in Minnesota is much higher and
through Medicare HMO plans much lower. One
explanation for why coverage for prescription drugs
through Medicare HMOs is lower in Minnesota is
that Medicare payments to HMOs in Minnesota are
lower than nationally, resulting in less availability of
comprehensive prescription drug coverage through
Medicare HMOs and higher premiums for
12.2%
11.0%
Metropolitan Area
Rural Area
Public
Employer
Medigap
Medicare HMO
None
*Indicates significant difference at 95% level from metropolitan area
beneficiaries.
Source: 2004 Minnesota Health Access Survey.
Characteristics of Beneficiaries Without
Prescription Drug Coverage
The differences in demographic characteristics
between all Medicare beneficiaries and those without
supplemental insurance coverage are similar to the
demographic differences between all Medicare
beneficiaries and those without prescription drug
coverage. As shown in Tables 2 and 3, in general,
Minnesota beneficiaries without supplemental
coverage and/or prescription drug coverage are more
6
Medicare Supplemental Coverage and Prescription Drug Use, 2004
likely to live in Greater Minnesota, have fewer years
of education, and have lower incomes than all
Minnesota Medicare beneficiaries. Minnesota
beneficiaries without drug coverage are different from
beneficiaries without supplemental coverage in that
they are older than Medicare beneficiaries in general,
and are similar to all Medicare beneficiaries in terms
of marital status.
Based on income alone, roughly 19% of non­
institutional beneficiaries in Minnesota without
prescription drug coverage were potentially eligible for
prescription drug coverage through Medical
Assistance or the Prescription Drug Program in 2004.
Beneficiaries who lack prescription drug coverage are
more likely to not fill a prescription, take smaller
amounts, or skip doses due to cost than beneficiaries
with coverage. In 2006, with the implementation of
Medicare Part D lower income beneficiaries are
eligible for subsidies to purchase prescription drug
coverage. The Minnesota Prescription Drug Program
ended on December 31, 2005.20
Table 3
Characteristics of Non-Institutional Medicare
Beneficiaries Without Prescription Drug
Coverage in Minnesota, 2004
MN Beneficiaries
Without Coverage
All MN
Beneficiaries
13.1%
36.2%
32.2%
18.5%
100.0%
13.9%
41.3%
31.1%
13.7%
100.0%
42.6%
57.4%
100.0%
42.0%
58.0%
100.0%
57.6%
42.4%
100.0%
59.3%
40.7%
100.0%
94.8%
5.2%
100.0%
92.7%
7.3%
100.0%
21.3%
37.3%
26.4%
15.0%
100.0%
19.3%
36.6%
26.0%
18.1%
100.0%
12.6%
33.6%
26.5%
11.8%
15.5%
100.0%
14.4%
28.0%
23.5%
13.1%
21.0%
100.0%
Metropolitan Area (MSA counties)
Rural Area
59.8%
40.2%
100.0%
63.9%
36.1%
100.0%
Greater Minnesota
Twin Cities
61.0%
39.0%
100.0%
54.7%
45.3%
100.0%
13.9%
27.2%
32.6%
18.7%
7.6%
100.0%
14.1%
27.4%
31.7%
18.3%
8.5%
100.0%
Prescription Drug Utilization and
Spending
Age
0-64
65-74
75-84
85+
The 2004 Minnesota Health Access Survey included
questions on prescription drug utilization and
spending. Besides providing insight into utilization
and out-of-pocket spending for prescription drugs,
these results also provide a baseline for analyzing the
transition to Medicare Part D in Minnesota. Table 4
shows that 92% of non-institutional Medicare
beneficiaries in Minnesota take at least one
prescription drug. Table 4 also provides the following
information for Medicare beneficiaries who take at
least one prescription drug on a regular basis:
Gender
Male
Female
Marital Status
Married
Not Married
Race/Ethnicity
White only, non-Hispanic
Non-White
Educational Status
Less than high school
High school graduate
Some college/tech school
College graduate or more
Household Income as %
of Poverty Guidelines
0 to 100%
101 to 200%
201 to 300%
301 to 400%
401%+
�
Medicare beneficiaries take an average of 4.2
prescription drugs on a regular basis;
�
36% of Medicare beneficiaries take 5 or more
prescription drugs on a regular basis;
�
13.5% of Medicare beneficiaries either do not
fill their prescriptions, skip doses or take lower
doses in order to save money;
�
5.6% of Medicare beneficiaries purchase
prescription drugs from a foreign country;
�
30.7% of Medicare beneficiaries spend $100
or more per month out-of-pocket on
prescription drugs; and
�
5.3% spend more than $300 per month.
Geography
Health Status
Excellent
Very Good
Good
Fair
Poor
Bold indicates significant difference at 95% level from all Minnesota
beneficiaries.
Source: 2004 Minnesota Health Access Survey.
7
Medicare Supplemental Coverage and Prescription Drug Use, 2004
Table 4
�
Minnesota Non-Institutional Medicare
Beneficiaries Prescription Drug Utilization and
Spending, 2004
In general, Medicare beneficiaries without
coverage take fewer prescription medications
than those with coverage;
�
Medicare beneficiaries without coverage are
more likely to skip or reduce the quantity of
drugs taken or not fill a prescription as a
result of cost than those with coverage;
�
Medicare beneficiaries without coverage are
more likely to purchase drugs from a foreign
country than those with coverage; and
�
In general, Medicare beneficiaries without
coverage pay more in out-of-pocket costs than
those with coverage.
MN Beneficiaries MN Beneficiaries
Without Drug
With Drug
All MN
Coverage
Coverage
Beneficiaries
Health Status
Excellent
Very Good
Good
Fair
Poor
13.9%
27.2%
32.6%
18.7%
7.6%
100.0%
14.3%
27.6%
30.9%
18.0%
9.2%
100.0%
14.1%
27.4%
31.7%
18.3%
8.5%
100.0%
12.6%
33.6%
26.5%
11.8%
15.5%
100.0%
15.9%
23.7%
21.0%
14.1%
25.3%
100.0%
14.4%
28.0%
23.5%
13.1%
21.0%
100.0%
89.6%
93.8%
92.0%
18.7%
22.4%
14.3%
14.8%
29.8%
100.0%
12.4%
18.7%
16.2%
12.3%
40.4%
100.0%
15.1%
20.2%
15.4%
13.3%
36.0%
100.0%
3.7
4.6
4.2
Change or Skip Prescription
Due to Costa b
17.4%
10.6%
13.5%
Buy From a Foreign Countrya
9.4%
2.8%
5.6%
29.9%
30.6%
24.2%
8.4%
6.9%
100.0%
50.2%
25.4%
16.9%
3.4%
4.1%
100.0%
41.7%
27.6%
19.9%
5.5%
5.3%
100.0%
Household Income as %
of Poverty Guidelines
0 to 100%
101 to 200%
201 to 300%
301 to 400%
401%+
Taking Prescription Drugs
on a Regular Basis
Number of Prescription Drugsa
1
2
3
4
5
Meana
Factors Influencing Coverage for Prescription
Drugs
The results presented in Table 4 show that utilization
(the number of drugs that a beneficiary consumes)
and income both appear to be related to whether or
not a Medicare beneficiary in Minnesota has coverage
for prescription drugs. Table 4 shows that Minnesota
Medicare beneficiaries without prescription drug
coverage have lower incomes and take fewer drugs
than beneficiaries with prescription drug coverage.
However, the results in Table 4 do not provide
information on the relative influence of utilization,
income, or other factors on whether or not
beneficiaries have prescription drug coverage.
Monthly Out-of-Pocket
Spendinga
$1-$49
$50-$99
$100-$199
$200-$299
$300 or more
Bold indicates significant difference at 95% level from those with
prescription drug coverage.
Source: 2004 Minnesota Health Access Survey.
a
Includes only those non-institutional Medicare beneficiaries who take
one or more prescription drugs on a regular basis.
b
"Change or skip" here refers to either reducing the quantity of drugs
taken, skipping doses or not filling a prescription.
In order to estimate the relative impact of each
variable, a logistic regression model is used to estimate
the impact of each factor while holding the other
factors constant. For example, this model can estimate
the influence of income on whether or not
beneficiaries have prescription drug coverage by
holding age, sex, race, educational level, geography,
and prescription drug use constant.23
Table 4 also illustrates differences in prescription drug
spending and utilization between Medicare
beneficiaries with and without drug coverage. In
general, these Minnesota results are consistent with
recent national studies:21, 22
�
Medicare beneficiaries without coverage are
less likely to take prescription medications
than those with coverage;
Results from this analysis show that having
prescription drug coverage is most influenced by the
number of drugs a beneficiary takes on a regular basis,
8
Medicare Supplemental Coverage and Prescription Drug Use, 2004
age, income and geography.24 The following estimates
were obtained from the analysis, holding other factors
constant:
�
Figure 6
Distribution of Monthly Out-of-Pocket
Prescription Drug Spending by Minnesota
Medicare Beneficiaries With and Without Drug
Coverage, 2004
Beneficiaries taking 5 or more prescription
drugs on a regular basis are almost 3 times as
likely and beneficiaries taking 3 to 4
prescription drugs are over twice as likely to
have drug coverage as beneficiaries not taking
prescription drugs.
2%
2%
3%
3%
3%
2%
3%
5%
8%*
16%
18%
22%*
24%
�
�
�
25%
Beneficiaries between the ages of 65 and 74
are almost three times as likely and
beneficiaries between the ages of 75 and 84
are almost two times as likely to have drug
coverage as beneficiaries under the age of 65;
27%*
47%
39%
27%*
10%*
Beneficiaries with incomes above 400% of
federal poverty guidelines are almost twice as
likely as beneficiaries with incomes less than
or equal to 200% of federal poverty guidelines
to have drug coverage; and
No drugs
8%
6%
Without Prescription
Drug Coverage
$0-$49
With Prescription
Drug Coverage
$50-$99
$100-$199
All
$200-$299
$300-$399
$400+
Source: 2004 Minnesota Health Access Survey.
*Indicates a significant difference at the 95% level from beneficiaries
with prescription drug coverage.
Beneficiaries in the Twin Cities metropolitan
area are approximately 25% more likely to
have prescription drug coverage than
beneficiaries in Greater Minnesota;
Figure 7 provides the potential monthly prescription
drug savings under Part D for Minnesota Medicare
beneficiaries without prescription drug coverage,
based on their current spending on prescription
drugs. Using the national average monthly premium
of $32.20,25 and assuming standard coverage,26 the
point where a beneficiary would start saving money
under Medicare Part D is at $63.80 in prescription
drug costs per month. Figure 7 shows that more than
37% of Minnesota Medicare beneficiaries
(approximately 112,000) without prescription drug
coverage spend less than this amount per month. As
of June 11, 2006 approximately 77% of Minnesota
Medicare beneficiaries had enrolled in a prescription
drug plan.27 Besides beneficiaries (particularly healthy
beneficiaries) choosing not to enroll to avoid paying
premiums, gaps in enrollment could be the result of
confusion about which plans are best, a reluctance to
change plans, a lack of pertinent information or other
reasons. It will be important to track the number and
The logistic regression results imply that both
utilization and income influence whether beneficiaries
get drug coverage; however, utilization appears to be
more strongly related to the decision to purchase drug
coverage. This finding has important implications for
participation in Medicare Part D by Minnesota
Medicare beneficiaries. Although Part D will likely
make prescription drug coverage more affordable for
beneficiaries, some healthy beneficiaries who take few
or no prescription drugs may choose not to enroll. As
shown in Figure 6, approximately 10% of
beneficiaries without prescription drug coverage do
not take any prescription drugs and another 27%
spend less than $50 per month on drugs. Based on
the logistic regression results, these are the
beneficiaries who may be least likely to participate in
Medicare Part D.
9
Medicare Supplemental Coverage and Prescription Drug Use, 2004
characteristics of beneficiaries in Minnesota who do
not have prescription drug coverage after the initial
implementation of Part D, because, as with all health
insurance, the degree to which the risk pool includes
healthy or low risk enrollees affects premium costs
and increases for all enrollees.
were more likely to be enrolled in types of
supplemental plans, like Medigap, that offered less
affordable prescription drug coverage. This is likely
related to why fewer Minnesota beneficiaries had
prescription drug coverage.
One important question is how existing insurance
coverage will change over the next few years as a result
of Medicare Part D. Beyond initial enrollment in Part
D, the longer-term impact of the law is unclear
because it is not known how beneficiaries in general,
and healthy beneficiaries in particular, will respond.
In addition, although subsidies were built into the
existing Medicare Part D legislation to avoid having
employers drop retiree coverage,28 the long-term effect
of this strategy remains to be seen. Another concern is
how the large percentage of Medicare beneficiaries
with Medigap coverage, particularly in rural areas, will
respond to Medicare Part D as new enrollment in
Medigap plans with prescription drug coverage is no
longer allowed. It is important to monitor how this
new law will impact coverage, utilization, and
spending of Minnesota Medicare beneficiaries in the
future.
Figure 7
Distribution of Monthly Prescription Drug
Spending by Minnesota Medicare Beneficiaries
Without Prescription Drug Coverage in 2004,
Compared to Part D Benefit
$400+
$300 to $399
$200 to $299
$93+*
$93*
$93*
3%
3%
8%
$100 to $199
22%
$50 to $99
27%
-$10 to $26
$1 to $49
27%
-$32 to -$11
$0
10%
Monthly Spending on
Prescription Drugs
$27 to $93*
Endnotes
-$32
1 The Henry J. Kaiser Family Foundation, “Minnesota Medicare
Enrollment as a Percent of Total Population, 2004” and
“Minnesota: Total Number of Medicare Beneficiaries, 2004.”
Estimated Monthly Savings
from Medicare Part D
Source: 2004 Minnesota Health Access Survey
*Note: Savings remain the same while the beneficiary is in the “donut
26
hole”.
As part of the survey, 3,085 Medicare beneficiaries were asked
questions about prescription drug utilization and spending,
supplemental and prescription drug health insurance coverage
and other issues.
2
Summary and Conclusions
3 The older Minnesota beneficiary population is consistent with
the fact that the 65+ population is older in Minnesota than the
national average (includes the institutionalized and noninstitutionalized population). U.S. Bureau of Census: State
Population Estimates by Demographic Characteristics, July 1,
2004 .
Past and current evidence suggests that supplemental
coverage for Minnesota Medicare beneficiaries differs
from the national average. These differences are
important because they imply that Medicare
beneficiaries in Minnesota on average pay more for
supplemental coverage and are at greater risk for
higher out-of-pocket costs than the national average.
Special data run for MDH done by Westat, Inc. using CMS
data. U.S. Department of Health and Human Services, Centers
for Medicare and Medicaid Services (CMS), “Health and Health
Care of the Medicare Population,” 2003.
4
MDH Health Economics Program, “Medicare Supplemental
Coverage in Minnesota,” December 2002. Although the pattern
of supplemental coverage is the same, results are not directly
comparable due to changes to the 2004 questionnaire.
5
Of particular interest is how this affects prescription
drug coverage. Prior to the implementation of
Medicare Part D, Medicare beneficiaries in Minnesota
10
Medicare Supplemental Coverage and Prescription Drug Use, 2004
One note of caution is that the assignment of mutually
exclusive insurance categories is different for the Minnesota and
U.S. results. Relative to the CMS data, Minnesota results may
overestimate HMO coverage (by including both cost and risk
HMOs), overestimate employer-sponsored coverage (because
HMO plans offered by an employer are counted under HMO in
the U.S. results and under employer in the Minnesota results)
and overestimate Medicaid coverage. In summary, the differences
discussed in this brief could be even larger if the CMS and
Minnesota definitions were the same.
Effects of the Medicare Modernization Act: Benefits, Cost
Sharing, and Premiums of Medicare Advantage Plans, 2005.”
Minnesota Department of Commerce, “2004 & 2005 Annual
Premium Guide Medicare Supplement.” See also comparisons of
plans on medicare.gov.
6
15
Ibid.
16 This estimate only includes income limits and does not adjust
for asset limits or spend-downs.
U.S. Department of Health and Human Services, Centers for
Medicare and Medicaid Services (CMS), 2004 Medicare Current
Beneficiary Survey (MCBS), “Characteristics and Perceptions,”
preliminary estimates. 9% of non-institutional Medicare
beneficiaries who have “Medicare Only” indicate they have no
usual source of care and 20% have delayed care due to cost. For
Medicaid covered beneficiaries it is 5% and 13%, respectively.
17
The Henry J. Kaiser Family Foundation and Hewitt Associates,
“Retiree Health Benefits Now and in the Future,” January 2004.
p. vi.
7
U.S. Department of Health and Human Services, Centers for
Medicare and Medicaid Services, Ratebooks and Supporting
Data for March-December 2004.
8
See the following: (1) Safran et al. (2005), “Prescription Drug
Coverage and Seniors: Findings From A 2003 National Survey,
(2) AARP (February 2006), “Reforming the Health Care
System,” 2005, (3) The Henry J. Kaiser Family Foundation and
Hewitt, “Retiree Health Benefits Now and in the Future,
January 2004, (4) The Henry J. Kaiser Family, “Medicare
Chartbook,” Summer 2005, (5) The Henry J. Kaiser Foundation
(February 2006), “Tracking Prescription Drug Coverage Under
Medicare: Five Ways to Look at the New Enrollment Numbers.”
There are many reasons why prescription drug coverage data
from these sources was not used including that (1) the target
population was different (e.g., Safran only included Medicare
beneficiaries 65 years or older), (2) the period of coverage was
different (the Kaiser Family “Tracking….” publication and
AARP “Reforming...” publication are for coverage at-any-time
during the year”, not a-point-in-time estimate such as the one
used for Minnesota), (3) no prioritizing of the insurance
categories (the AARP “Reforming….”), (4) the prescription drug
coverage definition was different ( Kaiser Family “Tracking…”
included only “creditable coverage or coverage equal to or
exceeding Medicare Part D coverage), (5) results were very
different than other publications (Safran et al.’s 20% Medigap
prescription drug coverage rate estimate for 2003 is much higher
then estimates from other sources. For example, in 2001,
Laschober estimates that the Medigap prescription drug coverage
rate was 6.7% and CMS although using the “at-any-time during
the year” approach, still only estimates Medigap prescription
drug coverage at 11% for 2003).
18
In 2004, 6.2 % of Minnesota’s population 65 and older resided
in nursing homes, compared to a national average of 4.1 %.
AARP, “ Reforming the Health Care System,” December 2005.
p. 5. Although the percent of Minnesota and US beneficiaries
enrolled both in Medicaid and Medicare is similar, Minnesota
Medicare beneficiaries enrolled in Medicaid are at least 25%
more likely to reside in a nursing home based on a MDH
analysis of Henry J. Kaiser Family Foundation, MCBS and
Minnesota Medicaid administrative data.
9
Jessica Banthin and Didem Bernard, “Out-of-Pocket
Expenditures on Health Care and Insurance Premiums among
the Elderly Population, 2003.” This study shows that out-of­
pocket plus premium expenditures were higher for Medicare
beneficiaries with Medigap coverage as compared to other
sources of supplemental coverage. One caution is that the study
only included Medicare beneficiaries 65 and over.
10
The Henry J. Kaiser Family Foundation and Hewitt
Associates,“Prospects for Retiree Health Benefits as Medicare
Prescription Drug Coverage Begins,” December 2005. p. 22
11
See the following: Weiss Ratings Inc., Weiss Ratings News.
“Medigap Rates Continue to Vary Dramatically.” Minnesota
Department of Commerce, “2004 & 2005 Annual Premium
Guide Medicare Supplement.”
12
See the following: Lori Achman and Lindsay Harris, The
AARP Policy Institute, “Early Effects of the Medicare
Modernization Act: Benefits, Cost Sharing, and Premiums of
Medicare Advantage Plans, 2005.” U.S. Centers for Medicare
and Medicaid Services, CMS News, “Review Shows Beneficiaries
in Medicare Advantage Plans will see Better Benefits, Lower
Costs,” February 27, 2004. See also comparisons of plans on
medicare.gov.
13
In 2005, the average monthly payment rate to Minnesota
HMOs was $646 and the national average payment was $736.
See Kaiser, “Minnesota: Average Monthly Payment Rates
(Weighted), 2005.” See the following for average premiums and
level of coverage: Lori Achman and Lindsay Harris, The AARP
Policy Institute, “Early Effects of the Medicare Modernization
Act: Benefits, Cost Sharing, and Premiums of Medicare
Advantage Plans, 2005.” Minnesota Department of Commerce,
“2004 & 2005 Annual Premium Guide Medicare Supplement.”
19
In 2005, the average monthly payment rate to Minnesota
HMOs was $646 and the national average payment was $736.
See Kaiser, “Minnesota: Average Monthly Payment Rates
(Weighted), 2005.” See the following for national and
Minnesota average HMO premiums and level of coverage: Lori
Achman and Lindsay Harris, The AARP Policy Institute, “Early
14
In its 2005 special session, the legislature repealed Statutes
256.955 (the Minnesota Prescription Drug Program).
20
11
Medicare Supplemental Coverage and Prescription Drug Use, 2004
Safran DG, Neuman P, Schoen C, Kitchman MS, Wilson I,
Cooper B, Li A, Chang H, Rogers WH. Prescription Drug
Coverage and Seniors: Where Do Things Stand on the Eve of
Implementing the new Part D Benefit? Findings from a 2003
National Survey of Seniors? Health Aff April 19, 2005 (web
exclusive): W5-152-W5-166.
21
U.S. Department of Health and Human Services, Centers for
Medicare and Medicaid Services (CMS), 2004 Medicare Current
Beneficiary Survey (MCBS), “Characteristics and Perceptions,”
preliminary estimates.
22
Beneficiaries on full Medicaid are excluded from this analysis
because they all receive prescription drug coverage. In addition, a
variable is used to control for beneficiaries who receive employersponsored coverage because most employer-sponsored health
insurance automatically includes prescription drug coverage.
23
Endogeneity may be an issue in this analysis as the utilization
of prescription drugs may be influenced by whether or not a
beneficiary has drug coverage. To test for the impact of lack of
drug coverage on lower prescription drug consumption,
beneficiaries who stated that they had reduced or skipped doses
or did not fill a prescription due to cost were removed from the
model. The direction and magnitude of the model results under
this specification were similar to the model results where these
beneficiaries were included, except geography was no longer a
significant factor. The influence of drug coverage on increased
prescription drug consumption may still be a source of bias;
however, this impact is mitigated by the fact that to increase
24
The Health Economics Program conducts research and applied policy
analysis to monitor changes in the health care marketplace; to
understand factors influencing health care cost, quality and access;
and to provide technical assistance in the development of state health
care policy.
h ealth e conomics p rog ram
drug consumption a prescription is needed and most
beneficiaries would be subject to additional cost-sharing. In
addition, beneficiaries with no or low cost sharing through
Medicaid or an employer plan are removed or controlled for in
the original model.
25 The Henry J. Kaiser Family Foundation, “Medicare Drug
Benefit Calculator,” August 2005. Kaiser also notes in
“Minnesota: Entire Prescription Drug Plan Profile” from
contracts approved as of October 2005, that the average private
prescription drug plan premium in Minnesota for basic plans
(“lowest premium plan offered by each sponsoring organization
in a region”) is $28.82.
26 The standard Medicare Part D coverage includes a $250
deductible, 75% of outpatient prescription drug costs between
$250 and $2,250, zero coverage for prescription drug costs
between $2,250 and $5,100, and, in general, 95% of
prescription drug costs above $5,100 .
As calculated by MDH from the following two sources: U.S.
Department of Health and Human Services (CMS), “Current
Medicare Beneficiary Population by State as of June 11, 2006.”
The Henry J. Kaiser Family Foundation, statehealthfacts.org,
“Medicare Beneficiaries with Creditable Prescription Drug
Coverage by Type, as of May 7, 2006.”
27
The Henry J. Kaiser Family Foundation and Hewitt
Associates, “Retiree Health Benefits Now and in the Future,”
January 2004.
28
For more information, contact the Health Economics Program at (651)
201-3555. This issue brief, as well as other Health Economics
Program publications, can be found on our website at:
http://www.health.state.mn.us/divs/hpsc/hep/index.html
Minnesota Department of Health
Health Economics Program
85 East Seventh Place, P.O. Box 64882
St. Paul, MN 55164-0882
(651) 201-3555
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