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Prescription Drug Coverage and Medical Indigence among the Elderly

When Medicare extends catastrophic coverage to outpatient prescription drugs in 1991, the program will benefit an estimated 15% to 25% of the aged population. For some of these individuals Medicare coverage will mean the difference between economic self-sufficiency and impoverishment due to high medical bills. This article provides empirical estimates of the relationship between third-party coverage of outpatient pharmaceuticals and the risk of medical indigence based on the experience in Pennsylvania following enactment of that state's Pharmaceutical Assistance Contract for the Elderly (PACE), a lottery-financed drug benefit program that currently enrolls nearly half a million residents age 65 and older. The study provides data on the distribution of billed charges for outpatient drugs by income class for PACE enrollees and then uses a time series analysis to estimate the impact of PACE implementation (July 1984) on monthly changes in Medicaid enrollments and expenditures by category of elderly Medicaid recipient over the period July 1981 through June 1987. Study findings are discussed in the context of the forthcoming Medicare drug benefit.