Persistence in Medicare Prescription Drug Expenditures by Treatment Class

The chronic nature of many prescription drugs used by Medicare beneficiaries suggests that adverse selection could pose a problem in the market for stand-alone prescription drug plans that were created under the Medicare Modernization Act of 2003. Using panel data on the Medicare population from the Medical Expenditure Panel Survey, we find that prescription drug expenditures are less concentrated but more persistent over time than are total health expenditures. We also find that information on drug treatment categories increases the power of prediction models. Such information could be useful in developing improved risk adjustment models designed to minimize adverse selection. Jessica S. Banthin Director, Division of Modeling and Simulation Center for Financing, Access and Cost Trends Agency for Healthcare Research and Quality U.S. Department of Health and Human Services Agency for Healthcare Research and Quality (AHRQ) 540 Gaither Road Rockville, MD 20850 [email protected] G. Edward Miller Economist, Division of Modeling and Simulation Center for Financing, Access and Cost Trends Agency for Healthcare Research and Quality U.S. Department of Health and Human Services Agency for Healthcare Research and Quality (AHRQ) 540 Gaither Road Rockville, MD 20850 [email protected]