Health Insurance Medicaid/Medicare Pharmaceuticals

Take-up of Medicare Part D

Using data from the 2004 and 2006 Health and Retirement Survey (HRS), Levy and Weir (2009) analyze the take up of Medicare Part D after its enactment on Jan 1, 2006.  They find that in 2006 only 7% of seniors lacked drug coverage compared to 24% in 2004.  It seems that Medicare Part D caused this large increase in drug coverage.

Medicare Part D Eligibility

Medicare Part D eligibility can be defined as follows:

  • Medicaid-covered Medicare beneficiaries (“dual eligibles”) were automatically enrolled in both Part D and a means-tested subsidy. 
  • Individuals with other coverage–usually through their employer–were instructed to keep their coverage.
  • Medicare Advantage (MA) plans had to offer drug coverage after Part D was implemented. Many of the MA plans, however, already had included drug benefits in their benefits package.
  • Individuals with private, non group insurance or those without prescription drug insurance had to decide whether or not they wanted to enroll in a Part D plan.


The evolution of senior drug coverage is shown in the following table.  After the implementation of Medicare Part D we see that  7% of seniors lacked drug coverage compared to 24% before part D.  Why didn’t these 7% take up Medicare Part D?  Are they uneducated?  Are not native English-speakers? It turns out that they just have low demand for prescription drugs.  “Those with low levels of education or income were no less likely to enroll in Part D than were beneficiaries with more education or income.”  Also, the authors find that 41% of individuals who didn’t take up Medicare Part D said they didn’t need any medications. 

Crowd out

Did part D crowd out employer drug coverage?  We did see  employer drug coverage drops from 40% in 2002 and 2004 to 37% in 2006.  However, individuals who have employer-provided drug benefits were almost just as likely to retain these benefits in 2004 as in 2006.  The authors argue that “while this does not rule out the possibility that some individuals dropped employer drug coverage because of Part D, it suggests that most new Part D enrollees are coming from individuals who would have remained uninsured or purchased Medigap in the absence of Part D.”


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