Variation in Estimated Medicare Prescription Drug Plan Costs
and Affordability for Beneficiaries Living in Different States
Matthew M. Davis, MD, MAPP
, Mitesh S. Patel, BSChem
, and Lakshmi K. Halasyamani, MD
Division of General Internal Medicine, University of Michigan, 300 NIB, 6C23, Ann Arbor, MI 48109-0456, USA;
Child Health Evaluation and
Research Unit, Division of General Pediatrics, University of Michigan, 300 NIB, 6C23, Ann Arbor, MI 48109-0456, USA;
Gerald R. Ford School of
Public Policy, University of Michigan, 300 NIB, 6C23, Ann Arbor, MI 48109-0456, USA;
University of Michigan Medical School, University of
Michigan, 300 NIB, 6C23, Ann Arbor, MI 48109-0456, USA;
Department of Internal Medicine, St. Joseph Mercy Hospital, Ann Arbor, MI, USA.
BACKGROUND: Medicare Part D prescription drug
plans (PDPs) implemented in January 2006 are de-
signed to improve beneficiaries’ access to pharmaceu-
ticals and use market competition to yield affordable
drug costs. Variations in estimated PDP costs for
beneficiaries living in different states have not previ-
ously been characterized.
OBJECTIVE: To describe variations in the estimated
costs of PDPs (plan premium, copays, and coinsurance)
within and across states.
DESIGN: To estimate PDP costs based on 4 actual
patient cases that exemplify common conditions and
prescription drug combinations for Medicare beneficia-
ries, we used the online tool provided by the Centers for
Medicare and Medicaid Services.
MEASUREMENTS: Principal study outcomes included
(a) variation across states in the estimated annual cost
of the lowest-cost PDP for each case and (b) variation in
the estimated affordability of the lowest-cost PDPs
across states, based on cost-of-living-adjusted median
income for zero-earner households.
RESULTS: For all 4 patient cases, we found substan-
tive within-state and between-state differences in the
estimated costs of Medicare PDPs incurred by benefi-
ciaries. The estimated annual costs to beneficiaries of
the lowest-cost PDPs varied across states by as much as
$320 for medications in the least expensive scenario,
and by as much as $13,000 for the most expensive
scenario. On average across states, a beneficiary with
cost-of-living-adjusted median income would expect to
spend 3%–28% of annual income to pay for medications
in the lowest-cost PDPs in the 4 patient cases. The
affordability of the lowest-cost plans varied across
states, and for 2 of the 4 cases the lowest-cost PDP
estimates were negatively correlated with cost-of-living-
adjusted median income.
CONCLUSIONS: Substantive differences in estimated
PDP costs are evident across states for patients with
common Medicare conditions. Importantly, the lowest-
cost plans were not proportionally affordable with
respect to state-specific cost-of-living-adjusted median
income. Refinement of the Medicare drug program may
be needed to improve national balance in PDP afford-
ability for beneficiaries living in different states.
KEY WORDS: Medicare; Part D; prescription drug plans; costs; income.
© 2007 Society of General Internal Medicine 2007;22:257–263
The Medicare Prescription Drug Improvement and Moderniza-
tion Act (MMA) of 2003 guaranteed a drug benefit in the form
of prescription drug plans (PDPs) available to all program
beneficiaries as of January 1, 2006.
The legislation addressed
a major problem in the pre-MMA era, namely that 9 out of 10
Medicare beneficiaries take prescription medications but more
than one-quarter had no coverage to help them afford the costs
of their medications, as well as those of necessities such as
food or heat.
Through Medicare PDPs, program beneficiaries purchase
their prescription drugs through cost-sharing arrangements
that, under the standard benefit structure described in the
MMA, vary with the beneficiary’s increasing annual out-of-
pocket medication expenses.
A central tenet of the MMA is
that market competition among PDPs will yield affordable
prescription drug coverage for Medicare beneficiaries.
ing to the Centers for Medicare and Medicaid Services (CMS),
there is some evidence already that market pressures have
brought the average PDP premium below predicted levels.
Most analyses of PDPs have yielded aggregate national
and have not explored possible state-to-state
differences in PDP costs for beneficiaries that may be market-
related. Between-state differences are likely, given known state
and regional differences in health care utilization and costs for
Only one prior study of which we
are aware has examined PDP costs across states,
analyzed 5 states and did not consider whether known
Received January 7, 2006
Revised June 29 2006
Accepted October 2, 2006
Published online January 9, 2007