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

Wesley Yin and Darius Lakdawalla

No WP2011-065, Boston University - Department of Economics - Working Papers Series from Boston University - Department of Economics

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.

Pages: 50 pages
Date: 2011-01
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Related works:
Journal Article: Insurers’ Negotiating Leverage and the External Effects of Medicare Part D (2015)
Working Paper: Insurers' Negotiating Leverage and the External Effects of Medicare Part D (2010)
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