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

Darius Lakdawalla1,2,3; Wesley Yin4

1 University of Southern California · 2 RAND Corporation · 3 National Bureau of Economic Research · 4 Boston University

The Review of Economics and Statistics 2015 open access

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 by analyzing how increases in insurer size resulting from the implementation of Medicare Part D affected drug prices negotiated in the non-Medicare commercial market. On average, Part D lowered prices for commercial enrollees by 3.7%. The external commercial market savings amount to $1.5 billion per year, which, if passed to consumers, approximates the internal cost-savings of newly-insured subsidized beneficiaries. If retained by insurers, it corresponds to a 5% average increase in profitability.

DOI
10.1162/rest_a_00463
Volume
97 (2)
Pages
314-331
Language
en
Export
BibTeX
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