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Health Aff (Millwood). 2014 Jun;33(6):940-5. doi: 10.1377/hlthaff.2013.1083.

A simple change to the Medicare Part D low-income subsidy program could save $5 billion.

Author information

Yuting Zhang ( is an associate professor of health economics and director of the Pharmaceutical Economics Research Group, Department of Health Policy and Management, University of Pittsburgh, in Pennsylvania.
Chao Zhou was a postdoctoral associate in the Pharmaceutical Economics Research Group, University of Pittsburgh, at the time this study was done. She is now an economist at the National Center for Injury Prevention and Control, Centers for Disease Control and Prevention, in Atlanta, Georgia.
Seo Hyon Baik is a senior statistician in the Pharmaceutical Economics Research Group, University of Pittsburgh.


Medicare Part D provides a subsidy to beneficiaries with incomes below 150 percent of the federal poverty level. Enrollees with the low-income subsidy accounted for 75 percent of the $60 billion in total federal Part D spending in 2013. The government randomly assigns any new beneficiary who automatically qualifies for the subsidy, or who successfully applies for it without indicating a preferred plan, to a stand-alone Part D plan whose premium is equal to or below the average premium for the basic Part D benefit in the region. We used an intelligent reassignment algorithm and 2008-09 Part D drug use and spending data to match enrollees to available plans according to their medication needs. We found that such a reassignment approach could have saved the federal government over $5 billion in 2009, for mean government savings of $710 (median: $368) per enrollee with a low-income subsidy. Implementing that simple change to reassign beneficiaries would have also lowered the proportion of prescriptions that required utilization review from 29 percent to 20 percent, and the proportion of prescriptions with quantity limits from 27 percent to 19 percent.


Cost of Health Care; Health Economics; Health Spending; Medicare

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