UC Berkeley News
Press Release

UC Berkeley Press Release

Mixed results for Medicare drug plan

– Seniors who haven't signed up for a Medicare "Part D" prescription drug plan should do so before a May 15 deadline or face higher premiums and lack of prescription coverage for catastrophic illness, advises a University of California, Berkeley, behavioral economist and Nobel Laureate.

Professor Daniel McFadden says that's the central message of a report published today (Monday, May 8) and embargoed until 5 p.m. (ET) in the journal Proceedings of the National Academy of Sciences. He and a team of economists conducted research on seniors' attitudes about the new, federally-subsidized prescription drug program for seniors that opened enrollment on Jan. 1.

Consumers have until May 15 to pick from a menu of competing offers -- including the government's own standard plan -- that charge different premiums and provide different degrees of coverage. After the deadline, the cost of coverage will increase 1 percent for every month past May 15.

"The most important message for consumers is that most of the approximately 6 million eligible Part D enrollees who hadn't yet enrolled as of late April should do so to lock in a penalty-free premium and to insure against catastrophic costs that might occur this year," said McFadden about his report.

Richard M. Suzman, director of behavioral and social research at the National Institute on Aging (NIA), a component of the National Institutes of Health, which funded the study of beneficiary thinking on Part D, said it "could not be more timely ... especially since the findings suggest that many who have not yet signed up might be underestimating the insurance value of the program."

In other research, McFadden has determined that people tend to underestimate the amount of money they should save for retirement, are often overwhelmed by choice, and don't always make decisions that are in their own self-interests. He won the Nobel Prize in economics in 2000 for developing theories and methods to analyze consumer choice.

When McFadden's latest research team presented survey participants with five alternatives - no prescription drug coverage, Part D's standard plan, or one of three hypothetical alternative plans that would provide varying degrees of insurance against catastrophic drug costs - 7 in 10 chose hypothetical plans with lower co-payments rather than plans with better catastrophic drug coverage.

The researchers also found that those who use more prescriptions and report higher pharmacy bills are significantly more likely to sign up for Part D than are those with lower pharmacy expenses. And low-income, less-educated seniors with poor health or cognitive impairment - as well as healthy people who use few prescription drugs - are less likely to sign up for Part D coverage than others.

McFadden's team advises in its paper that seniors consider not just their current pharmacy bills, but also the probability of developing new, unforeseen health conditions that will require expensive treatment compounded by costly prescriptions.

By requiring voluntary information-gathering and enrollment, Part D requires a degree of attention and acuity that some seniors just don't have, said McFadden. As a result, he said, some of the elderly become so confused by the numerous, complex choices that they will fail to act before the May 15 deadline.

While more than half of those surveyed said they knew something about Part D, almost 40 percent said they had little or no information about it. The researchers suggest that more outreach and possible training by Medicare and by the Social Security Administration of community-based, privately-financed advocacy groups that work with older Americans could increase Part D sign-ups and help avoid an unbalanced enrollment that could financially undermine the program.

Approximately 2,000 participants ages 63 or over completed the researchers' self-administered questionnaire that lasted about 22 minutes. Questions addressed Part D, the individual's health status and conditions, long-term care choices, individual prescription drug use and costs, and attitudes about risk. Simple measurements of cognitive impairment were also included.

The survey was conducted through a random sample and included many respondents with cognitive disabilities, McFadden said. He also noted that the research team's oldest respondent was age 97.

"We have quite a few respondents who are unable to handle their own money and medications, but nevertheless are able to participate in the survey," he said.

His team will re-interview the survey respondents beginning May 16.

The researchers include Rowilma Balza, manager of the econometrics laboratory in UC Berkeley's economics department; Byung-hill Jun, a UC Berkeley graduate student in economics; Joachim Winter, an economics professor, and economist Florian Heiss, both from the University of Munich; Francis Caro of the University of Massachusetts Gerontology Institute in Boston; and economist Rosa Matzkin of Northwestern University.