This study provides the first nationally representative estimates of changes in the financial burden of out-of-pocket prescription drug costs for people younger than age sixty-five, from 1999 to 2008. The percentage with high financial burden for prescription drugs peaked in 2003, then decreased between 2003 and 2007, with a slight increase in 2008. This overall decline occurred during a period when drug use was on the rise.
This decrease in financial burden is important evidence of the success of strategies already in place to lower drug costs for consumers, including the shift to increased use of generic drugs that is clearly evident in our analysis. However, the financial burden is still high among some groups, notably those with public insurance and those with low incomes, which has important implications for future expansions in insurance coverage.
Although several prior studies have examined how changes in cost sharing have affected the financial burden for patients in paying for health care,(13
) the studies have not focused on the financial burden attributable to prescription drug costs. Across the board, these prior analyses point to a rising burden of overall out-of-pocket health costs over the past decade, with millions more people each year added to the roles of the underinsured.
A large nationally representative survey in 2007 reported that an estimated twenty-five million insured people under age sixty-five were underinsured (spent more than 10 percent of their income on out-of-pocket medical care), representing a 60 percent increase from 2003.(22
) Our findings point to a different trend for prescription drugs costs, one in which out-of-pocket burden for drugs has decreased since 2003. Importantly, had it not been for this decrease, it is likely that the increase in overall health care cost burden since 2003 would have been even greater.
The overall decrease in financial burden for prescription drugs should not, however, obscure the important role that prescription drug spending plays in consumers’ overall health budgets. Although overall prescription drug spending accounts for a small portion (10 percent) of total health care spending from all payment sources,(1
) out-of-pocket costs for drugs take up a much larger portion of each household's health budget. We find that one in four nonelderly people in the United States devote more than half of their total out-of-pocket health care costs to prescription drugs, with a substantially larger percentage among low-income people with public insurance and chronic conditions such as diabetes.
We found that the financial burden for prescription drugs was higher for people in the nongroup insurance market compared with those with private group insurance. Although this difference may be because people with group insurance have higher incomes than people with nongroup insurance, we did find slightly higher out-of-pocket costs per capita for drugs in the nongroup market than in the group insurance market. It is important to note that others have also found higher out-of-pocket health care spending (overall) for those with nongroup insurance as compared to group insurance.(19
These differences between private nongroup and group insurance are worth exploring further, considering the provisions in the Affordable Care Act to expand coverage to twenty-four million people through new health insurance exchanges that build on the nongroup market.(27
) There are reasons to suspect, however, that future nongroup policies will have better, more generous drug coverage than existing policies.
For example, policies sold on the insurance exchange will be mandated (by law) to include prescription drug coverage, which is not the case currently. Although drug coverage will be part of the minimum essential benefits, it is unknown how plans will set limits on covered services, or set limits at all. Recent work from the Institute of Medicine defining the minimum essential benefit provided no additional guidance on this important point, other than assuring that plans balance competitiveness and affordability.(28
) The affordability of prescription drugs under the insurance exchanges will need to be monitored, especially for people with low incomes and high health care needs.
The trends in financial burden differed slightly for people insured by public programs, who experienced a relatively steady rate of financial burden between 1999 and 2006, and a pronounced decline after 2006. Part of the decline in burden may reflect the introduction of Medicare Part D in 2006, although only a small minority of people under age sixty-five had Medicare-only coverage in each of the years (less than 1 percent). The trends likely reflect changes made to the Medicaid programs across the country in 2004-05, with the addition of preferred drug lists and increased use of prior authorization.(4
The trends we outline in this article have other potential implications for prescription drug policy. As most states and the federal government enter a period of prolonged budgetary constraint, state Medicaid agencies may increase prescription drug copayments or place other restrictions on drug use to reduce public outlays.
Although these changes may be inevitable, their impact on the poor and those with public insurance should not be ignored. Almost one in seven people with family income less than the federal poverty level lived in families with high drug-cost burden in 2008, and more than one in three spent more out-of-pocket for drugs than for any other aspect of health care. Monitoring the affordability of prescriptions in insurance programs, especially public insurance programs, may be just as important as monitoring the medical loss ratio or quality metrics such as cancer screening and patient satisfaction.
In conclusion, although the overall financial burden of prescription drug costs increased from 1999 to 2003, it decreased over the next five years until 2008, during a time when use of prescription drugs increased. The lower financial burden of drug costs is probably, in part, a result of the increased use of generic drugs. Upward pressure on out-of-pocket drug spending in the near future is possible, with the market entry of new expensive drugs such as biologics, continued increases in the prevalence of chronic conditions, and state and federal budgetary constraints. Whether the public or private sectors will find new innovations in the future to lower drug costs for consumers remains to be seen.