Impact of an Annual Dollar Limit or Cap on Prescription Drug Benefits for Medicare Patients

Published in: JAMA, Journal of the American Medical Association, v. 290, no. 2, July 9, 2003, p. 222-227

Posted on RAND.org on December 31, 2002

by Chien-Wen Tseng, Robert H. Brook, Emmett B. Keeler, Carol Mangione

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CONTEXT: Annual dollar limits, or caps, on drug benefits are common in Medicare managed care (Medicare + Choice) and have been part of several proposals for a national Medicare drug benefit. OBJECTIVES: To determine how cap levels affect the percentage of patients exceeding the cap and their out-of-pocket drug costs and to identify the medications that contribute most to prescription costs. DESIGN AND SETTING: Cross-sectional analysis of 2001 pharmacy claims data from a large Medicare + Choice plan in a mature market with caps of $750 to $2000 per year applied to the plan's share of prescription costs. PARTICIPANTS: Patients who filled at least 1 prescription in 2001 (n = 438 802). MAIN OUTCOME MEASURES: Percentages of patients exceeding caps, identified from prescription claims; out-of-pocket patient costs before exceeding caps, calculated from patients' co-payments; and out-of-pocket patient costs after exceeding caps, estimated from total prescription costs before exceeding the cap. Each unique drug was ranked by total expenditures, which included spending by patients who exceeded caps and by the plan for that drug. RESULTS: A total of 22%, 14%, and 4% of Medicare patients exceeded caps of $750, $1000, and $2000, respectively. Across caps, patients faced a potential 2- to 3-fold increase in median out-of-pocket costs after exceeding caps ($179-$305/mo) to continue the same prescription use as before exceeding caps ($79-$100/mo). For patients who exceeded a cap of $750, yearly out-of-pocket drug costs ranged from $564 to $4201 (5th-95th percentiles). Fifteen of the 20 medications with the highest total prescription expenditures for patients who exceeded the cap were for chronic conditions. Seven had lower-cost generic versions or a generic medication available in the same treatment class. CONCLUSIONS: At lower caps, a substantial proportion of Medicare patients exceeded their annual drug benefit. To continue the same medication use as before exceeding caps, these patients faced potentially high increases in out-of-pocket costs for medications used primarily to treat chronic conditions. Generic options were not available for many of these drugs.

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