AcademyHealth Annual Research Meeting
June 26, 2005
Medicare Drug Coverage and
Declining Disability Among the
Elderly: Is There A Link?
Michael F. Furukawa, PhD
Assistant Professor
School of Health Management and Policy
W. P. Carey School of Business
Arizona State University
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 nearelderly (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







Drug coverage (binary) in year t - 1


No disability
Any physical limitation
Any IADL
ADLs 1-2
ADLs 3+
Died during year
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 state
No
Any
Any
ADLs
ADLs
disability physical IADL
1-2
3+
Died
Employer drug coverage
Naïve model
Selection model
-1.7%
8.5%
0.2%
-0.8%
0.5%
-2.3%
0.5%
-2.8%
0.3%
-1.6%
0.2%
-1.1%
Medigap drug coverage
Naïve model
Selection model
-2.3%
30.9%
0.1%
-5.0%
0.5%
-8.0%
0.8%
-9.6%
0.6%
-5.8%
0.3%
-2.4%
Results for Chronically-ill
Predicted probabilities of disability state
No
Any
Any
ADLs
ADLs
disability physical IADL
1-2
3+
Died
Employer drug coverage
Chronic conditions 1-2
Chronic conditions 3-4
Chronic conditions 5+
8.1%
7.3%
5.6%
0.3%
1.3%
2.5%
-1.8%
-1.1%
0.4%
-2.9%
-2.8%
-1.9%
-2.0%
-2.3%
-2.5%
-1.7%
-2.4%
-4.1%
Medigap drug coverage
Chronic conditions 1-2
Chronic conditions 3-4
Chronic conditions 5+
30.9%
29.6%
25.5%
-3.1%
0.5%
5.3%
-7.3%
-5.6%
-1.7%
-10.2%
-10.5%
-9.0%
-6.9%
-8.8%
-10.9%
-3.3%
-5.2%
-9.2%
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