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

  • Wesley Yin

    ()

    (Department of Economics, Boston University and NBER)

  • Darius Lakdawalla

    ()

    (University of Southern California and NBER)

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.

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Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number WP2011-065.

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Length: 50 pages
Date of creation: Jan 2011
Date of revision:
Handle: RePEc:bos:wpaper:wp2011-065
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Web page: http://www.bu.edu/econ/

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  1. Brooks, John M. & Dor, Avi & Wong, Herbert S., 1997. "Hospital-insurer bargaining: An empirical investigation of appendectomy pricing," Journal of Health Economics, Elsevier, vol. 16(4), pages 417-434, August.
  2. Town, Robert & Vistnes, Gregory, 2001. "Hospital competition in HMO networks," Journal of Health Economics, Elsevier, vol. 20(5), pages 733-753, September.
  3. Claudio Lucarelli & Jeffrey T. Prince & Kosali Simon, 2009. "The Welfare Impact of Reducing Choice in Medicare Part D: A Comparison of Two Regulation Strategies," Working Papers 2010-14, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  4. Gary V. Engelhardt & Jonathan Gruber, 2010. "Medicare Part D and the Financial Protection of the Elderly," NBER Working Papers 16155, National Bureau of Economic Research, Inc.
  5. Tasneem Chipty & Christopher M. Snyder, 1999. "The Role Of Firm Size In Bilateral Bargaining: A Study Of The Cable Television Industry," The Review of Economics and Statistics, MIT Press, vol. 81(2), pages 326-340, May.
  6. Jonathan D. Ketcham & Kosali Simon, 2008. "Medicare Part D's Effects on Elderly Drug Costs and Utilization," NBER Working Papers 14326, National Bureau of Economic Research, Inc.
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