Lessons from medicare coverage of colonoscopy and prostate-specific antigen test

Under the 1997 Balanced Budget Act, Medicare expanded coverage of colonoscopy and prostate-specific antigen tests from diagnostic and surveillance tests to preventive screenings. The preventive tests now are covered with no deductibles or copayments. Reducing out-of-pocket costs increases premiums, resulting in a subsidy to beneficiaries who use the service by nonusers, and by taxpayers who shoulder the bulk of Medicare's costs. Using Medicare fee-for-service claims and the Medicare Current Beneficiary Survey, we estimate the behavioral and financial consequences of these Balanced Budget Act coverage expansions. We find that fee-for-service Medicare-covered colonoscopies increased by 3.5 percentage points after the coverage expansion, and prostate-specific antigen tests increased by 6.8 percentage points. Beneficiaries with lower incomes, less education, and those lacking a usual source of care or supplemental insurance were less likely to use these tests. Therefore, they generally received much smaller net benefits from the coverage of colonoscopies than more advantaged beneficiaries.