This report was written by the General Accounting Office (GAO) in response to a request by Senator John Melcher that the GAO provide information about prescription drugs as they relate to the needs of the elderly. The information in the report is based on results of an ongoing GAO study of catastrophic illness insurance and is derived from documents which the GAO has reviewed and from two legislative proposals to expand Medicare coverage for catastrophic illness. Demographic information about use and cost of prescription drugs is presented which shows that many of the elderly need prescription drugs but cannot afford to pay for them. Prescription drug coverage under Medicare, under Medicaid, and in states that have developed programs specifically to meet this need is discussed. Ways in which the House of Representatives and Senate bills (H.R. 2470 and S.1127) would provide benefits for prescription drugs for the elderly, and the groups of the population that would remain without benefits if these bills were enacted are examined. Tables illustrating state Medicaid coverage and state prescription drug programs are appended. (NB)