We analyze data from the Health and Retirement Study on senior citizens' take-up of Medicare Part D. Take-up among those without drug coverage in 2004 was high; about fifty to sixty percent of this group have Part D coverage in 2006. Only seven percent of senior citizens lack drug coverage in 2006 compared with 24 percent in 2004. We find little circumstantial evidence that Part D crowded out private coverage in the short run, since the persistence of employer coverage was only slightly lower in 2004 -- 2006 than it was in 2002 -- 2004. We find that demand for prescription drugs is the most important determinant of the decision to enroll in Part D among those with no prior coverage. Many of those who remained without coverage in 2006 reported that they do not use prescribed medicines, and the majority had relatively low out-of-pocket spending. Thus, for the most part, Medicare beneficiaries seem to have been able to make economically rational decisions about Part D enrollment despite the complexity of the program. We also find that Part D erased socioeconomic gradients in drug coverage among the elderly.
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