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Heterogeneous effects of consolidation on premiums in Medicare Part D

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  • Hill, Nicholas
  • Wagner, Mathis

Abstract

Medicare Part D plans provide prescription drug coverage to 45 million seniors. The recent past has seen significant consolidation amongst plan providers, notable CVS's 2018 acquisition of Aetna and Cigna's 2018 acquisition of Express Scripts. In this paper, we analyze the effect of consolidation of standalone Part D plan providers on premiums using plausibly exogenous variation in concentration induced by the 2011 merger between CVS and Universal American. We find that the increase in concentration for standalone Medicare Part D plans that resulted from this merger led to higher average premiums, a total of nearly $170 million per year. We find further that, consistent with the assumptions behind standard antitrust practice, the effects of the increase in concentration were heterogeneous: moderately (or more) concentrated markets that saw a meaningful increase in concentration saw significant increases in premiums, while premiums in other markets did not change significantly.

Suggested Citation

  • Hill, Nicholas & Wagner, Mathis, 2021. "Heterogeneous effects of consolidation on premiums in Medicare Part D," Journal of Health Economics, Elsevier, vol. 80(C).
    • Handle: RePEc:eee:jhecon:v:80:y:2021:i:c:s0167629621001065
    DOI: 10.1016/j.jhealeco.2021.102521
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    More about this item

    Keywords

    Medicare; Part D; Health insurance; Merger; Concentration; Premiums; Heterogeneity; Antitrust;
    All these keywords.

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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