Medicare Drug Coverage and Declining Disability Among the Elderly: Is There A Link?

Michael F. Furukawa, PhDAssistant ProfessorSchool of Health Management and PolicyW. P. Carey School of BusinessArizona State University

AcademyHealth Annual Research MeetingJune 26, 2005

Introduction

Declining disability among the elderly in the 1990’s (Cutler, 2001)

Link between supplemental insurance and disability (Porell and Miltiades, 2001)

Drug coverage increases medication use (numerous) No link between medication use and disability for near-

elderly (Freedman and Aykan, 2003) Drug coverage and functional disability – Is there a link?

Research supported by AHRQ Dissertation Grant (R03 HS14514-01)

Data and Methods

Medicare Current Beneficiary Survey (MCBS) Cost and Use, 1994-1999 Nationally-representative sample Detailed measures of functional disability

Physical limitations Instrumental Activities of Daily Living (IADLs) Activities of Daily Living (ADLs)

Drug coverage from private supplemental plans Employer-sponsored drug coverage Medigap drug coverage

Variables

Level of functional disability (ordered) in year t No disability Any physical limitation Any IADL ADLs 1-2 ADLs 3+ Died during year

Drug coverage (binary) in year t - 1 Continuous coverage from single, private supplemental plan

Controls: Demographics, socioeconomic status, rural, region General health, chronic conditions (year t -1)

Specification

Ordered probit regression Endogenous treatment effect – disentangle

insurance effect from adverse selection Parametric two-step selection model

(Heckman, 1979) Nonparametric discrete factor model

(Heckman and Singer, 1984) Simulation

Predicted probabilities of disability state

Identification

Employer-sponsored drug coverage Pension service requirements: 10+ years Industry type:

Manufacturing Transportation and utilities Public administration

Medigap drug coverage State regulation of Medigap insurers

Premium rating restrictions Underwriting restrictions

Main Results

Predicted probabilities of disability stateNo Any Any ADLs ADLs Died

disability physical IADL 1-2 3+Employer drug coverageNaïve model -1.7% 0.2% 0.5% 0.5% 0.3% 0.2%Selection model 8.5% -0.8% -2.3% -2.8% -1.6% -1.1%

Medigap drug coverageNaïve model -2.3% 0.1% 0.5% 0.8% 0.6% 0.3%Selection model 30.9% -5.0% -8.0% -9.6% -5.8% -2.4%

Results for Chronically-ill

No Any Any ADLs ADLs Dieddisability physical IADL 1-2 3+

Employer drug coverageChronic conditions 1-2 8.1% 0.3% -1.8% -2.9% -2.0% -1.7%Chronic conditions 3-4 7.3% 1.3% -1.1% -2.8% -2.3% -2.4%Chronic conditions 5+ 5.6% 2.5% 0.4% -1.9% -2.5% -4.1%

Medigap drug coverageChronic conditions 1-2 30.9% -3.1% -7.3% -10.2% -6.9% -3.3%Chronic conditions 3-4 29.6% 0.5% -5.6% -10.5% -8.8% -5.2%Chronic conditions 5+ 25.5% 5.3% -1.7% -9.0% -10.9% -9.2%

Predicted probabilities of disability state

Principal Findings

Drug coverage associated with lower functional disability after controlling for adverse selection Persons with drug coverage have

9 to 31% greater probability of having no disability

2 to 8% lower probability of having any IADL Chronic illness mediates drug coverage effects

Conclusions

Caveats: Assumes constant effect over time Robustness of specification?

Preliminary evidence of a link between drug coverage and functional disability among elderly Medicare beneficiaries

Chronic illness appears to be a key mediating factor

Policy implications: Medicare drug benefit (MMA) could result in important health effects