In 2003, the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) was signed into law, which expanded the Medicare program to include voluntary insurance coverage for prescription drugs. This program, known as Part D, was implemented on January 1, 2006. Given that one of the program's primary aims was to expand access to prescription drugs, evaluating the impact on drug utilization is of first-order importance. However, identifying this effect is complicated by the fact that Part D was announced with the passage of the MMA in December 2003, two years before the program was implemented. Forward looking individuals may have anticipated future price changes brought about by subsidized coverage and changed their drug spending before Part D took effect. This project will estimate the causal demand response to the announcement of Part D in 2003. There are three implications of this project. First, this investigation quantifies the effect of announcing a policy before its implementation, with consequences for program evaluation. The idea that policy announcements can have real effects (separate from their implementation effect) on important outcomes has been largely unexplored in the program evaluation literature. Second, the project provides the first test of forward-looking behavior in the context of drug demand. In many other contexts, optimizing individuals trade-off present and future consumption based on the relative prices in each period. However, it is not known whether individuals are responsive to expectations of future prices when determining current drug consumption levels. Third, the project identifies a potentially large source of bias in the previous estimates of the utilization effect of Part D. To the extent that there was an anticipatory response, these studies- which identify the program effect from changes in utilization relative to the year or two just prior to the policy's implementation-- will misstate the net effect of Part D. The empirical approach identifies whether there is a causal anticipatory response by comparing utilization for chronic drugs relative to acute drugs before and after the announcement of Part D. This strategy hinges on the observation that acute drugs treat illnesses that are largely unpredictable, thus their demand is likely to respond only to current prices, whereas chronic drug use may respond negatively or positively to anticipated future price reductions. This project also uses variation in exposure to the announcement across other groups such as the elderly and near-elderly to identify the effect. Finally, this project produces the first treatment effect utilization estimates of Part D that take into account a pre-program anticipatory response.
This project seeks to estimate the causal anticipatory effects of Part D on drug utilization. Estimating the utilization effect of Part D is important for evaluating whether the primary aims of the policy-- expanding access to prescription drugs-- were achieved and for assessing the program's future financial solvency. Accounting for the combined effect of the anticipatory response and the response at implementation will produce a more accurate estimate of the program effect than previous studies that have considered the implementation effect alone.
| Alpert, Abby (2016) The anticipatory effects of Medicare Part D on drug utilization. J Health Econ 49:28-45 |
