Abstract
We compare estimated lifetime outโofโpocket prescription drug expenditures on outpatient prescription drugs, premiums and late enrollment penalties for healthy 65โyearโold Medicare beneficiaries if they (a) purchase Part D as soon as they are eligible versus (b) waiting until they contract a drugโintensive condition. Using data from the Medicare Current Beneficiary Survey, a representative sample of the Medicare population, we estimate the annual probability that a healthy 65โyearโold will transition to a drugโintensive health state or death. We then use Monte Carlo simulations to estimate expected lifetime prescription drug spending with and without drug insurance. We find that for the statutory minimum benefit policy with a $30 per month premium, lifetime expected expenditures are about 10% higher for women and 6.5% higher for men if healthy beneficiaries postpone enrollment in Part D. Eliminating the late enrollment penalty would create a significant cost advantage for postponed enrollment, particularly for men. Under current rules, the financial advantage of early enrollment coupled with the reduction in risk associated with purchasing Part D plans and potential utility gains from insuranceโinduced drug consumption, suggests that immediate purchase of Part D is the optimal choice for Medicare beneficiaries. Copyright ยฉ 2008 John Wiley & Sons, Ltd.