Impact of the Medicare Part D Coverage Gap Closure and Generic Entry on Medication Use

Abstract

The Affordable Care Act included a provision to eliminate the Medicare prescription drug coverage gap. The policy was phased in by gradually diminishing the gap each year between 2011-2020. This provides a natural experiment to conduct an in-depth study of how the policy affected medication use, which has implications for other benefit designs that vary cost sharing throughout the year. Using 2007-2016 Medicare claims data, we estimate the effects of closing-the-gap policy with a difference-in-differences approach that compares changes in medication use before and after policy between non-subsidized beneficiaries and a subset of Medicare beneficiaries who have not been affected by the policy. To account for the gradual phase-in of policy changes and possible learning effects, we examine the dynamic effects using an event study difference-in-differences model. Importantly, around the same time as the coverage gap closure, several blockbuster drugs that are commonly used by the Medicare population experienced patent expiration and began to see generic entry. To isolate the effect of coverage gap closure from patent expirations, we further use monthly prescription drug event data to more accurately track initial generic entry by therapeutic class. We find that filling the gap significantly reduced individuals’ out-of-pocket spending on branded drugs and increased the number of prescriptions filled for branded drugs. Consistent with the policy design, people who fell in the gap, were at older ages, or had coexisting chronic conditions saw a larger reduction in the amount they paid for prescription drugs. Without controlling for generic entry, the effect of the policy on utilization is underestimated for branded drugs and overestimated for generic drugs.