Medicare Drug Coverage and Declining Disability Among the Elderly: Is There A Link?

1. 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

2. 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 near-elderly (Freedman and Aykan, 2003) • Drug coverage and functional disability – Is there a link? • Research supported by AHRQ Dissertation Grant (R03 HS14514-01)

3. 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

4. Variables • Level of functional disability (ordered) in year t • No disability • Any physical limitation • Any IADL • ADLs 1-2 • ADLs 3+ • Died during year • Drug coverage (binary) in year t - 1 • Continuous coverage from single, private supplemental plan • Controls: • Demographics, socioeconomic status, rural, region • General health, chronic conditions (year t -1)

5. 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

6. 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

7. Main Results

8. Results for Chronically-ill

9. 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

10. 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