The Cost and Health Effects of Prescription Drug Coverage and Utilization in the Medicare Population

Cost estimates for the Medicare prescription drug coverage do not account for the potential offset by savings on other medical services. To estimate these savings, the author examines the effects of Medigap prescription drug benefit on elderly prescription drug spending, Medicare Part A spending, and Medicare Part B spending. Results suggest that a $1 increase in prescription drug spending is associated with $1.63–$2.05 reduction in Medicare spending.