Generic-Only Coverage in Medicare HMOS Leads to Higher Out-of-Pocket Costs, Lower Drug Use for Enrollees

Hospitalizations increase; drug plans save under coverage rules in place for 1.2 million Medicare beneficiaries in 2002


Medicare HMOs that changed their pharmacy benefits to cover only generic drugs reduced their costs but increased out-of-pocket costs and reduced health care quality for many of their enrollees, according to a new study published today by Health Affairs and the California HealthCare Foundation.

The study of more than 550,000 Medicare HMO enrollees in California found that those whose drug coverage changed from brand name and generic in 2001 to generic-only in 2002 reduced their overall use of prescription medication, including brand-name drugs, and increased their use of generic medications compared to members of a control group whose coverage did not change.

Hospital admissions, meanwhile, rose by 3.02 per 1,000 members for those whose drug coverage changed to generic-only, compared to a slight decline for those whose coverage did not change.

The switch to generic-only coverage had a positive effect on reducing HMO cost. Average monthly costs for the health plans fell by $11 per member with generics-only coverage, from $105 in 2001 to $94 in 2002, but rose slightly from $108 to $110 for those whose coverage stayed the same.

At the same time, out-of-pocket costs increased for enrollees with generic-only coverage. Average monthly per member out-of-pocket costs rose $16.60 between 2001 and 2002, from $30.90 to $47.50. For those whose coverage remained the same, average out-of-pocket costs rose by less—$13.22—from $26.27 to $40.49.

Author Jennifer Christian-Herman, associate director of Health Services Research at Cerner Health Insights in Beverly Hills, California, and two colleagues also studied prescription drug use in five clinical areas: congestive heart failure, coronary artery disease, diabetes, epilepsy, and anti-depresssant medication use.

When compared to the control group whose coverage did not change, there was a statistically significant reduction in prescription drug use among those with generic-only coverage for all chronic conditions except epilepsy.

“The study demonstrated that switching to a generic-only benefit changed drug-use patterns and lowered total pharmacy costs for the Medicare HMO population studied,” Christian-Herman said. “However, evidence suggesting a negative effect on quality of care was noted overall and across four clinical areas. Given the mixed findings, it appears that a generic-only benefit may not be an optimal solution at this time.”

In 2002, 26% of Medicare HMOs covered generic medications only, nearly three times the rate of 2001. That number translates to 1.2 million Medicare HMO members with generic-only coverage.

Christian-Herman’s co-authors at Cerner Health Insights were Matthew Emons, principal investigator, and Dorothy George, senior associate director.

The article is available on the Health Affairs Web site through the link below.

About Health Affairs

Health Affairs, published by Project HOPE, is a bimonthly multidisciplinary journal devoted to publishing the leading edge in health policy thought and research.


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About the California Health Care Foundation

The California Health Care Foundation is dedicated to advancing meaningful, measurable improvements in the way the health care delivery system provides care to the people of California, particularly those with low incomes and those whose needs are not well served by the status quo. We work to ensure that people have access to the care they need, when they need it, at a price they can afford.