An empirical investigation about the effects of prescription drug coverage on drug prices and incomes of recipients of Medicare/Medicaid
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Implementing a prescription drug coverage plan for Medicare is a primary concern for the U.S. Congress. The purpose of this paper is to examine price and income elasticity of demand for prescription drugs for Medicare recipients. We have used current data from MCBS (Medicare Current Beneficiary Survey) Cost and Use files for years 1995 through 1999, to detennine drug use and spending information for Medicare beneficiaries both with and without drug coverage. The study shows that beneficiaries without prescription drug coverage use less prescriptions and pay more out of pocket, and their share in total expenditures are smaller. Using 1967 through 1980 data from Healthcare Financing Administration (April, 1987,) price elasticity of demand was calculated Other than some exceptions, most of the data support that price and income elasticity of demand for prescription dmg coverage is more elastic than pnce elasticity of demand calculated with 1967-1980 data. It is a simple conclusion that now more substitutes are available than before (1967-1980). People can go abroad and obtain their prescriptions cheaper. We saw a lot of examples that Amencan citizens go to Mexico and Canada to fill their prescriptions.