Objectives.The authors assess (1) the effects of first-dollar prescription drug insurance coverage provided by the Ontario Drug Benefit plan at age 65 on prescription drug use by seniors, and (2) the differential effects of this coverage on prescription drug use by seniors with varying levels of health status.Methods.The authors modeled self-reported prescription drug use contained in the 1990 Ontario Health Survey as a function of eligibility for coverage, controlling for health status and other factors. The two-part model was used and was estimated by maximum likelihood.Results.The provision of first-dollar prescription drug insurance coverage at age 65 is associated with an increase in drug use. Increases in drug use are, however, concentrated primarily among individuals with lower levels of health status. Most of the increased use occurs among individuals already under physician supervision, ie, an increase in the level of use among drug users rather than an increase in the probability of use.Conclusions.As Ontarians turn age 65 and become eligible for publicly subsidized prescription drugs, their use increases but the effect appears to be restricted mainly to persons with lower levels of health status. Given a growing trend toward reduction of public subsidy and increased reliance on patient cost sharing, more research is needed to quantify the use and health effects of such initiatives.