Cost related non-adherence to prescribed medications is a common problem among older adults, with potentially devastating consequences, especially for seniors with serious chronic illnesses such as cardiovascular disease, diabetes, or depression. While we know from clinical trials how important essential drug therapy is to achieving desirable health outcomes, and that the risk of adverse medical events increases with non-adherence to prescribed medications, we know little from representative samples of Medicare beneficiaries or about the cost consequences of adverse health outcomes due to medication non-adherence. This is an area where empirical research using high-quality, nationally representative data can fill the knowledge gap. This 24-month project has the following specific aims: (1) To quantify the effects of prescription drug coverage on cost-related medication non-adherence, and the effects of cost-related non-adherence on health and healthcare expenditures among Medicare seniors;(2) To examine whether and how the relationships between drug coverage and cost-related non-adherence, and between cost-related non-adherence and health and healthcare expenditures differ for Medicare seniors with and without major chronic health conditions;(3) While analyzing these issues, to control for the possible endogeneity of a beneficiary's drug insurance status as well as their decision whether to adhere or not to adhere to prescribed drug regimens;and (4) To examine whether the adverse health effects of cost-related non-adherence evolve over a 1-, 2-, and 4-year time frame and, if so, how. These aims are achieved by analyzing longitudinal and nationally representative data for the Medicare elderly from two sources: the Health and Retirement Study (HRS) and the Medical Expenditure Panel Survey (MEPS). We propose to estimate a series of multivariate models to examine how drug coverage affects cost-related medication non-adherence, and how cost-related non-adherence subsequently affects health outcomes and health care expenditures, methodologically paying careful attention to the possible "self-selection" effects of drug insurance status and medication adherence choices. Our goal is to identify true causal effects, not just cross-sectional associations in the data. The project is significant in four ways: (1) It offers a unique opportunity to study the linkages that exist between drug insurance, cost-related medication under-use, health outcomes, and healthcare spending, and the role of chronic conditions in these processes, using an integrated framework and data that are nationally representative of adults 65 and older;(2) The study addresses a serious methodological issue that has been largely ignored up until now: the possibility that individuals with different health risks have been systematically choosing different drug insurance arrangements and making different decisions regarding whether to adhere to prescribed regimens, a phenomenon called "selection bias;" (3) The study uses MEPS, a rich data source that has not yet been fully mined to investigate these issues;and (4) The study pays special attention to how effects differ for Medicare seniors with major chronic health conditions.