Document Type

Working Paper

Date of This Version

4-1-2008

Abstract

This study tests the impact of a public prescription benefit on Medicare-eligible veterans, utilizing a mid-1990s benefit change in the VA health care system. Using data from the Medicare Current Beneficiary Survey, I compare prescription spending and utilization, as well as use of other health services and health outcomes for veterans and non-veterans before and after the VA insurance change. Results show that receipt of a publicly-provided prescription benefit leads to an increase in spending on prescriptions, and simultaneously, a decrease in spending on other medical services. On average, every $1 increase in drug spending is associated with a $6.50 decrease in other medical spending, and this change is accompanied by measured improvements in the health of benefit recipients. The benefit appears to accrue mainly to low-income and disabled individuals who typically have higher-than-average medical expenses, and are also more likely to experience substantial welfare gains from the relative income increase associated with the reduction (to zero) in the price of prescription drugs.

Working Paper Number

0803

Included in

Economics Commons

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