Prepared by the Fiscal Policy Institute for USAct
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Thanks to the Nathan Cummings Foundation and The Midwest Academy for their support for this report,and to Wendy Chamberlain for graphic assistance. Thanks also to Amanda McCloskey, Director of HealthPolicy Analysis, Families USA for her research assistance and to The Civil Service Employees Association, Inc,
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IMPOSSIBLE CHOICES: Food and Housing or Prescription Drugs? 1
What happened to prescription drug prices during the 1990's?
How have the increases in prescription drug prices compared to increases in the overall cost of living and the cost of other necessities?
Section III: The Impact on Household Incomes
How do the increases in prescription drug prices compare to the increases in Social Security benefits and the overall incomes of the elderly?
What do the combinations of increasing drug prices and relatively stagnant incomes mean for some typical elderly households and for some real ones?
IMPOSSIBLE CHOICES: Food and Housing or Prescription Drugs?
Several recent studies have documented the phenomenal increases in prescription drug prices that have
occurred in recent years. This report builds upon these previous analyses by examining how rising drug priceshave affected the household budgets and living standards of older Americans.
During the 1990s, the price of most prescription drugs commonly used by seniors increased much more than
the increase in the overall cost of living as measured by the Consumer Price Index (CPI). Moreover, the prices ofprescription drugs increased faster than any other basic necessity — food, housing and even medical services. Theaverage cost per prescription also increased faster than the overall price index and the indices for other basicnecessities.
Over this same period, older Americans, on average, saw some growth in their incomes, but not enough to
keep pace with skyrocketing drug prices. The squeeze on household budgets was even greater for those seniorswhose incomes were stagnant or grew more slowly than the average. Those whose incomes did not grow with theaverage and who also happened to be in need of prescription drugs whose prices had increased at two or three oreven more times the rate of inflation were particularly hard pressed. Many older Americans with incomes wellabove the poverty level are forced to make difficult choices between the prescription drugs they need and othernecessities of life, from food, clothing and shelter to other medical services and transportation.
Section I of this report (The Basics: What happened to prescription drug prices during the 1990's?) reviews
the findings of two reports from Families USA and one from the Kaiser Family Foundation that document thechanges that have occurred during various portions of the 1990's in average retail prices per prescription, averagemanufacturer prices for all prescription drugs and for brand name drugs, the average price for seniors’prescriptions, and the price of the 50 prescription drugs most commonly used by older Americans.
Section II (The Cost Factors: How have the increases in prescription drug prices compared to increases in
the overall cost of living and the cost of other necessities?) presents data from the U. S. Bureau of Labor Statisticson changes in the Consumer Price Index and in key components of that index (for necessities like food andhousing). It then compares the changes in these components of living costs with the increases in prescription drugprices over the same period.
Section III: The Impact on Household Incomes uses data from the Social Security Administration and the
Census Bureau to compare prescription drug price increases with the increases that have occurred in SocialSecurity benefits and incomes for elderly women living alone and for elderly couples. Average prescription pricesand the prices of the majority of the prescription drugs commonly used by seniors have grown faster than theSocial Security benefits and the total incomes of both income for elderly married couples and elderly women livingalone.
That prescription drug prices have increased faster than incomes has meant that the burden of paying for
prescription drugs has worsened for the elderly across the United States. Section IV: The Impossible Choicesshows that seniors today are paying a greater percent of their income for prescription drugs. This section of thereport also includes a number of case studies of elderly couples and individuals whose prescription drug costsconsume an inordinate percentage of their incomes.
This report shows that the increasing prices of prescription drugs represent a burden not just for low-income
seniors but for middle-income seniors as well. Any solution to the problem of prescription drug coverage mustaddress both the needs of this broader spectrum of the elderly population and the soaring prices of prescriptiondrugs.
Over the last 8 years, the average cost per prescription for senior
• From 1992 through 2000, according to a recent report by Families USA, the average
cost per prescription for senior citizens grew from $28.50 to $42.30, an increase ofover 48%.
• In 5 of these 8 years, the average price per prescription increased by more than 5%.
• In only one of the 8 years, did the average price increase by less than 3%.
• For a senior citizen whose usage remained constant during this period, at 23.5
prescriptions per year — the average number of prescriptions per senior for the 8 yearperiod — the increase in price alone would have increased the average senior’sprescription drug costs from $669.75 per year to $994.05 per year.
• For seniors with greater health problems and a greater need for prescription drugs, the
increase over the period would have been even more substantial as will bedemonstrated later in this report.
• A couple, such as the Bergeons of South Milwaukee, who now spend about $6,500
annually for their prescription drugs, would be devoting $2,120 (or more than 10%)less of their annual $21,000 income to prescription drugs if it were not for these priceincreases.
* Families USA, “Cost Overdose: Growth in Spending for the Elderly, 1992-2010, “ July 2000. The average cost per prescription for senior citizens in the U.S. increased by over 48.4% between 1992 and 20
More than half of the increase in prescription drug expenditures has been
driven by the growth in the average price per prescription.
In its July 2000 report, Cost Overdose: Growth in Drug Spending for the Elderly, 1992 -2010,Families USA, in conjunction with PRIME Institute of the University of Minnesota, used data fromthe Medicare Current Beneficiary Survey to calculate both total and average prescription drugexpenditures per senior for the period 1992 to 1996. Data from the Health Care FinancingAdministration (HCFA), Office of the Actuary, was then used to estimate total and averageprescription drug expenditures per senior for the years 1997 to 2000.
• Annual spending per elderly person for prescription drugs grew from $559 in 1992 to $1,205 in
• Some of this growth in spending is the result of increasing usage. The number of prescriptions
per elderly person grew from 19.6 in 1992 to 28.5 in 2000, an increase of 45.4 percent.
• A more significant factor, however, in driving up spending on prescription drugs was the increase
in the average cost per prescription. The average cost per prescription for the elderly increasedfrom $28.50 in 1992 to $42.30 in 2000, an increase of $13.80 per prescription or 48.4 percent. Over the last eight years, the average cost per prescription has increased more than prescription drug usage. Number of Average Cost Prescriptions Per Senior Prescription
Source: Families USA, "Cost Overdose: Growth in Drug Spending for the Elderly, 1992-2010," July 2000.
Retail prescription drug prices have increased
Source: Prescription Drug Trends: A Chartbook, The Henry J. Kaiser Family Foundation, July 2000.
During the 1990's, the price of brand name drugs grew even faster.
• In a July 2000 report, the Kaiser Family Foundation reported that the average retail price
of all prescriptions grew from $23.68 in 1991 to $37.38 in 1998.
• This represented a 59% increase over the course of the seven year period, and an average
annual increase of over 6.7% per year.
• Over this same seven year period, the retail price of brand name drugs grew even more
On average, retail prescription prices for brand name drugs increased by 8.8% per year during the 1990s.
Average annual percent change in retail prescription prices, 1991-1998. All Prescriptions Brand Name Drugs Generic Drugs
Source: Prescription Drug Trends: A Chartbook, The Henry J. Kaiser Family Foundation, July 2000. While brand name prescriptions cost 28.5% more than all prescriptions in 1991, they cost 46.6% more
Average retail prescription prices for brand name drugs, 1991-1998.
Source: Prescription Drug Trends: A Chartbook, The Henry J. Kaiser Family Foundation, July 2000.
While some of the increase in the average retail price of a prescriptioncan be explained by shifts to the use of new, more expensive drugs, theprices for existing drugs have gone up year after year.
• According to a July 2000 Kaiser Family Foundation report, manufacturers prices for
existing drugs have increased every year during the 10-year period studied.*
• On average, drugs that were marketed for the entire period studied, cost 52% more in
Prices of existing prescription drugs have increased rapidly.
Percent change in manufacturer price of existing prescription drugs from previous year, 1992-1998.
Source: Prescription Drug Trends: A Chartbook, The Henry J. Kaiser Family Foundation, July 2000.
• The Kaiser Family Foundation, "Prescription Drug Trends: A Chartbook," July 2000.
A study of the 50 prescription drugs most commonly used by olderAmericans found that prices increased by over 30%, from January1994 to January 2000, for the existing drugs that were marketedthroughout this period.
• The prices of the 39 such drugs that were marketed during all of this six year period,
when weighted on the basis of sales, increased by 30.5%.
27 have had price increases of more than 25%
all except 2 had increases of more than 15%.
The prices of the prescription drugs most commonly used by older Americans hincreased substantially over the last six years. Of the 39 drugs, commonly used by older Americans, that were marketed during the entire 6-year period studied, 27 had 6 or more price increases. One drug (Imdur) had 11 increases and two others (Premarin and Atrovent) had 10 increases each. Number of Increases 1994-2000 Name of drugs
Synthroid (.01 mg), Synthroid (.05 mg), Synthroid (.08 mg)
Lanoxin (0.13 mg), Pravachol, Lanoxin (0.25 mg)
Humulin N, Topral XL, Propulsic, metaprolol
Norvasc ( 5 mg), Pepcid, Vasotec (5 mg), Procardia XL (30 mg),Zoloft, Vasotc (10 mg), Cardizem CD (240 mg), Cardizem CD (180mg), Coumadin (5 mg), Procardia XL (60mg), Coumadin (2 mg),Klor-Con 10, Paxil, Relafen, Cardizem CD (120 mg) , Nitrostat
Prilosec, Zocor (10 mg), Mevacor, Iorazepam
Source: Families USA, Hard to Swallow: Rising Drug Prices for America’s Seniors,” April 2000.
Source: Families USA, "Still Rising: Drug Price Increases for Seniors 1999-2000," April 2000. For all 50 of the prescription drugs commonly used by older Americans, the overwhelming majority (83.9%) of the year-to-year price changes exceeded the average annual rate of inflation (2.4%) for this period. Of the total number (273) of year-to-year price changes studied, there were only 2 reductions. Year-to-Year Number of Changes Price Changes of This Type Section II: The Cost Factors How have the increases in prescription drug prices compared to increases in the overall cost of living and the cost of other necessities? 37 of the 39 prescription drugs most commonly used by seniors (which were marketed throughout the January 1994 to January 2000 period) experienced price increases greater than the increase in overall prices.
• Between January 1994 and January 2000, the overall Consumer Price Index (CPI)
• During this same period, the prices of all but two of these 39 prescriptions drugs
• 19 of these prescription drugs experienced price increases which were greater than twice
the overall increase in the Consumer Price Index during this period
• 8 of these prescription drugs increased in price more than TRIPLE the overall change in
Source: Fiscal Policy Institute analysis of drug price data reported by Families USA in “Still Rising: Drug Price Increases for Seniors:1999-2000,” April 2000.
The prices of virtually all of the prescription drugs most commonly used by olderAmericans increased faster than inflation, and most have increased
The prices of these 5 drugs increased between 3.2 and 3.5
The prices of these 8 drugs increased between 2.1 and 2.9 times
The prices of these 18 drugs increased by between
1.1 and 2 times the rate of inflation during this
The prices of almost all of the prescription drugs most commonly used by seniors have risen much faster than the overall Consumer Price Index.
Number of drugs with price increases.
Sources: "Still Rising: Drug Price Increases for Seniors 1999-2000," Families USA, April 2000. Change in the Consumer Price Indices from the U.S. Bureau of Labor Statistics. The prices of 9 of the 10 prescription drugs most commonly used by the elderly have risen faster than Consumer Price Index, with 5 of those drugs increasing by almost 3 times or more greater than the rate of inflation.
Percent change: January 1994 to January 2000. Lanoxin (0.25 mg) Lanoxin (0.13 mg) Synthroid (0.08 mg) Vasotec (5 mg) Procardia XL (30 mg) Norvasc (5 mg) CPI - All Items Prilosec
Sources: Change in the prices of prescription drugs from "Still Rising: Drug Price Increases forSeniors 1999-2000," Families USA, April 2000. Change in Consumer Price Index from the U.S. Bureau of Labor Statistics.
Other basic necessities are increasing at about the same rate as theoverall CPI, but prescription drugs are putting much greater pressure onthe budgets of older Americans.
• Senior citizens whose income increased at the rate of inflation, would be able to keep up
• But seniors who are in ill health or otherwise in need of prescription drugs face a much
more difficult situation, even if their incomes are growing as fast as the CPI.
• For seniors with fixed incomes and substantial drug costs, something has to give. The prices of the prescription drugs most commonly used by older Americans have risen nearly twice as fast as the prices of other basic necessities.
Percent change, January 1994 to January 2000. Overall CPI Top 50 Drugs
Sources: Weighted average change in the price of the prescription drugs most commonly used by seniors (average weighted bysales) from "Still Rising: Drug Price Increases for Seniors 1999-2000," Families USA, April 2000. Change in the Consumer PriceIndices from the U.S. Bureau of Labor Statistics.
The average cost per prescription for seniors has also increasedmuch faster than the prices of other necessities.
• Between 1992 and 2000, the overall Consumer Price Index increased by 23.0%.
• During this same period, the average cost per prescription increased by 48.4% — more
than double the increase in overall prices.
• No other basic necessity (food, housing, apparel, transportation) increased as much as the
increase in the average cost of prescriptions for seniors. The average cost per prescription for senior citizens has risen much faster than the prices of other basic necessities. Overall CPI Average Cost Per Prescription
Sources: Change in the cost per prescription from "Cost Overdose: Growth in Drug Spending for the Elderly, 1992-2010," FamiliesUSA, July 2000. Change in the Consumer Price Index from the U.S. Bureau of Labor Statistics. Section III: The Impact on Household Incomes How do the increases in prescription drug prices compare to the increases in Social Security benefits and the overall incomes of the elderly? Prescription drug costs represent an increasing share of older American's incomes.
• Social Security has an annual Cost of Living Adjustment (COLA) but average prescription drug
costs represent an increasing portion of seniors' Social Security benefits.
• Average prescription drug spending for elderly couples as a percent of average Social Security
benefits for elderly couples increased from 8.4% in 1992 to 13.5% in 1999.
• This is significant since for most retired Americans, Social Security is the only part of their
incomes that is automatically adjusted for inflation.
• From 1991 to 1998, the average Social Security benefit of elderly couples increased by 22.9%.
Over the same period, the average retail prescription drug price increased by 57.9%.
• For elderly widows, the situation was very similar with Social Security benefits increasing by
28.3 % in the face of that same 57.9% increase in prescription drug prices.
Since 1991, average retail prices for prescription drugs have grown more than twice as fast as average monthly Social Security benefits for elderly couples.
Sources: Prescription Drug Trends: A Chartbook, The Henry J. Kaiser Family Foundation, July2000 and Office of the Actuary, Social Security Administration
For elderly couples, the percent of the average Social Security benefit consumed by prescription drug spending has increased dramatically.
Average prescription drug spending per couple as a percent of average Social Security benefit for an elderly couple.
Sources: Office of the Actuary, Social Security Administration and Families USA. The same has been true for widows.
Average prescription drug spending per senior as a percent of average Social Security benefit for a widow.
Sources: Office of the Actuary, Social Security Administration andFamilies USA. Average expenditures on drugs have grown much faster than the median income of older Americans. The average cost per prescription has also grown faster than seniors' incomes. In recent years, the annual increases in retail prescri prices have exceeded the increases in the median incom women living alone.
Sources: Prescription Drug Trends: A Chartbook, The Henry J. Kaiser Family Foundation, July 2000 and U.S. Census Bureau. In four out of the five years between 1994 and 1998, the a retail prescription drug prices have exceeded the increase elderly married couples.
Sources: Prescription Drug Trends: A Chartbook, The Henry J. Kaiser Family Foundation, July 2000 and U.S. Census Bureau. Section IV: The Impossible Choices What do the combinations of increasing drug prices and relatively stagnant incomes mean for some typical elderly households and for some real ones? Elderly women, even those who are not considered poor, are particularly burdened by high prescription drug costs.
• Elderly women tend to have very low incomes
• In 1999, 20 percent of elderly women living alone had incomes below the federal poverty
• Almost two-thirds — 62.2% — had incomes below 200% of the federal poverty threshold or
• Even with an income at 200% of the poverty threshold, an elderly woman with just three
prescriptions can have prescription drug costs consume up to 14% of income.
A widow living on $15,982 per year (200% of thepoverty level) could easily spend 14% of her income onprescription drugs. $2,295 (14.36%) $13,687 (85.64%) Annual Cost Glucophage 500 mg (diabetes) Procardia XL 30/60 mg (hypertension) $ 821/901 Lipitor 10 mg (cholesterol) $1,915/2,295 The high cost of prescription drugs also puts increasing pressure on the budgets of many elderly couples.
• Although elderly couples have a relatively low official poverty rate, many have incomes just
above the poverty threshold of $10,070. In 1999, almost one fourth of the elderly individualsliving in married couple families had family incomes less than $20,140 or 200% of the federalpoverty threshold and more than 40% had incomes less than 300% of the threshold.
• An elderly couple using five prescription drugs (Iorazepam, Klor-Con 10, Imdur, Premarin and
Atrovent) with an income at 200% of the poverty threshold in 1994 spent about 5.5% of itsincome on prescription drugs in 1994.
• An elderly couple with an income at 200% of the poverty line today would need to spend over
10% of its income to purchase the same bundle of prescription drugs. Prescription drug costs represent a substantially greater burden on the incomes of many elderly households today than just six years ago. $2,080 (10.33%) $959 (5.49%) $18,060 (89.67%) $16,509 (94.51%)
Prescription Drug Annual Cost: 1994 Annual Cost: 2000
In Binghamton, New York, the Gourleys spend more onprescription drugs than they do on food each month. $1,187.00 For the Gourleys, prescription drugs are the second largest expense each month in their household budget. Prescription Drugs ($347.05 ) Food ($250.00 ) Phone ($50.00 ) Gas/electric ($157.00 ) Car Payment ($232.00 ) Mortgage ($498.00 )
The McHughs of Narberth, Pennsylvania spend ov$16,000 per year on prescription drugs. This is mothan 45% of their annual income. Required Prescriptions Annual Cost The McHughs spend 45% of their annual income on prescription drugs. Annual cost for prescription drugs $16,519 (45.89%) Annual income left for all other expenses $19,481 (54.11%)
Joseph and Ruth Podraza of Waukegan, Illinoisspend $454.37 per month for Ruth'sprescriptions drugs. Joseph and Ruth Podraza spend almost 20% of their monthly income on prescription drugs. $454.37 (19.48%) Monthly cost for prescription drugs Monthly income left for all other expenses 1878.52 (80.52%)
Richard and Nelda Hart in Erie, Pennsylvania spendalmost $500 per month on prescription drugs. The Harts, an elderly couple living in Erie, Pennsylvania, spend one quarter of their monthly income on prescription drugs.
Monthly Expenditures onPrescription Drugs
Monthly income left for allother expenses
$499 (24.96%) $1,501 (75.04%)
"I think seniors have legitimate complaints. My wife and I pay$1,200 a month for nine prescriptions. If we don't have themoney, we have to scrimp and save and see if we have it nextmonth. " John Dellaria, Elk Grove Village, IllinoisAppendix A Pharmaceutical Industry Profits
Pharmaceutical manufacturers have ranked first
in profitability among all industries.
Median percent net profit after taxes as a percent of firm revenues for all firms in the industry.
Source: Prescription Drug Trends: A Chartbook, The Henry J. Kaiser Family Foundation, July 2000. The manufacturers of the top 50 drugs used by the elderly were almost five times more profitable than the median Fortune 500 firm.
Profits as a percent of revenue, 1998.
Source: Hard to Swallow: Rising Drug Prices for America's Seniors," Families USA, November
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