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Insurers’ Negotiating Leverage and the External Effects of Medicare Part D

Author

Listed:
  • Wesley Yin

    (Department of Economics, Boston University and NBER)

  • Darius Lakdawalla

    (University of Southern California and NBER)

Abstract

By influencing the size and bargaining power of private insurers, public subsidization of private health insurance may project effects beyond the subsidized population. We test for such spillovers in Medicare Part D by analyzing how resulting increases in insurer size affected drug prices negotiated in the non-Medicare commercial market. On average, Part D lowered prices for commercial enrollees by 5.3%. The external commercial market savings amount to $2.6 billion per year, which, if passed to consumers, approximates the cost-savings of newly-insured subsidized beneficiaries. If retained by insurers, it corresponds to an 8% average increase in profitability.

Suggested Citation

  • Wesley Yin & Darius Lakdawalla, 2011. "Insurers’ Negotiating Leverage and the External Effects of Medicare Part D," Boston University - Department of Economics - Working Papers Series WP2011-065, Boston University - Department of Economics.
    • Handle: RePEc:bos:wpaper:wp2011-065
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    Cited by:

    1. Sanzenbacher, Geoffrey T. & Wettstein, Gal, 2020. "Drug insurance and the strategic behavior of drug manufacturers: Evergreening and generic entry after Medicare Part D," Journal of Health Economics, Elsevier, vol. 72(C).
    2. Bognar, Katalin & Romley, John A. & Bae, Jay P. & Murray, James & Chou, Jacquelyn W. & Lakdawalla, Darius N., 2017. "The role of imperfect surrogate endpoint information in drug approval and reimbursement decisions," Journal of Health Economics, Elsevier, vol. 51(C), pages 1-12.
    3. Abe Dunn & Adam Hale Shapiro, 2019. "Does Medicare Part D Save Lives?," American Journal of Health Economics, MIT Press, vol. 5(1), pages 126-164, Winter.
    4. Jeroen Hinloopen & Adriaan R. Soetevent, 2020. "(Non‐)Insurance Markets, Loss Size Manipulation and Competition: Experimental Evidence," Journal of Industrial Economics, Wiley Blackwell, vol. 68(4), pages 819-856, December.
    5. Mark G. Duggan & Fiona Scott Morton, 2011. "The Medium-Term Impact of Medicare Part D on Pharmaceutical Prices," American Economic Review, American Economic Association, vol. 101(3), pages 387-392, May.
    6. Alpert, Abby & Lakdawalla, Darius & Sood, Neeraj, 2023. "Prescription drug advertising and drug utilization: The role of Medicare Part D," Journal of Public Economics, Elsevier, vol. 221(C).
    7. Jakub P. Hlávka & Jeffrey C. Yu & Dana P. Goldman & Darius N. Lakdawalla, 2021. "The economics of alternative payment models for pharmaceuticals," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 22(4), pages 559-569, June.
    8. Keith M. Marzilli Ericson, 2014. "Consumer Inertia and Firm Pricing in the Medicare Part D Prescription Drug Insurance Exchange," American Economic Journal: Economic Policy, American Economic Association, vol. 6(1), pages 38-64, February.
    9. Daniel P. Miller & Jungwon Yeo, 2019. "The Consequences of a Public Health Insurance Option: Evidence from Medicare Part D," American Journal of Health Economics, MIT Press, vol. 5(2), pages 191-226, Spring.
    10. Claudio Lucarelli & Sean Nicholson & Minjae Song, 2010. "Bundling Among Rivals: A Case of Pharmaceutical Cocktails," NBER Working Papers 16321, National Bureau of Economic Research, Inc.
    11. Robin McKnight & Jonathan Reuter & Eric Zitzewitz, 2012. "Insurance as Delegated Purchasing: Theory and Evidence from Health Care," NBER Working Papers 17857, National Bureau of Economic Research, Inc.
    12. Eric Helland & Darius Lakdawalla & Anup Malani & Seth A Seabury, 2020. "Unintended Consequences of Products Liability: Evidence from the Pharmaceutical Market [“An Economic Analysis of Mary Carter Settlement Agreements,”]," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 36(3), pages 598-632.
    13. Jurjen Kamphorst & Vladimir Karamychev, 2021. "Going Through The Roof: On Prices for Drugs Sold Through Insurance," Tinbergen Institute Discussion Papers 21-005/VII, Tinbergen Institute.
    14. Francesco Decarolis, 2012. "Pricing and Incentives in Publicly Subsidized Health Care Markets: the Case of Medicare Part D," PIER Working Paper Archive 12-026, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    15. Decarolis, Francesco, 2015. "The unintended effects of the Medicare Part D low income subsidy," Health Policy, Elsevier, vol. 119(5), pages 597-603.
    16. Soetevent, Adriaan & Hinloopen, Jeroen, 2016. "(Non-)Insurance Markets, Loss Size Manipulation and Competition," Research Report 16009-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    17. Rabbani, Maysam, 2023. "Mergers with future rivals can boost prices, bar entry, and intensify market concentration," International Journal of Industrial Organization, Elsevier, vol. 88(C).
    18. Daniel Hosken & David Schmidt & Matthew C. Weinberg, 2020. "Any Willing Provider and Negotiated Retail Pharmaceutical Prices," Journal of Industrial Economics, Wiley Blackwell, vol. 68(1), pages 1-39, March.
    19. Chen, Hua & Ding, Yugang & Wang, Xiangnan & Yang, Yifei, 2023. "The effect of public insurance policy on the private insurance market: New evidence from a quasi-experiment in China," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 937-953.

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    More about this item

    JEL classification:

    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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