Seniors Save As Much on Drugs As Insurers, Study Finds

A key argument for adding a prescription drug benefit to Medicare is that insurers obtain significant price discounts not available to individual consumers who pay out-of-pocket. But a new study from the National Center for Policy Analysis finds that seniors on their own already pay prices as low and often lower than the prices private insurers pay.

If an insurance company is paying the bill, seniors do not have much incentive to shop around, says NCPA Senior Fellow Andrew Rettenmaier, who also is executive associate director of the Private Enterprise Research Center (PERC) at Texas A&M University. But when they pay with their own money, they have an incentive to shop aggressively.

The NCPA study examined prices of more than 36,000 prescriptions for the 39 drugs most commonly prescribed for Medicare patients and found:

• There is no significant difference between prices paid by seniors with insurance coverage and those paid by seniors spending their own money for 60 percent of the prescriptions.
• Where price differences are significant, seniors are twice as likely to pay less than private insurers.

The report notes other studies that indicate prices vary greatly among retail pharmacies in the same cities, and that seniors often can achieve significant savings by shopping around. Now patients paying out-of-pocket can also achieve discounts by buying in the national market via the Internet by mail order.

The study also examined prices of nearly 70,000 prescriptions for an expanded set of 229 prescription drugs and found similar results:

• For close to three-quarters of the prescriptions, third- party insurers did not pay significantly lower prices.
• Where price differences were significant, individuals again paid lower prices twice as often.

When seniors spend their own money, they have an incentive to search for lower prices," Rettenmaier added. As a result, they often pay prices as low or lower than insurance companies.

For the full text of the study, see www.ncpa.org/pub/st/st265/.