Working Paper: NBER ID: w16251
Authors: Darius N. Lakdawalla; Wesley Yin
Abstract: Public financing of private health insurance may generate external effects beyond the subsidized population, by influencing the size and bargaining power of health insurers. We test for this external effect in the context of Medicare Part D. We analyze how Part D-related insurer size increases impacted retail drug prices negotiated by insurers for their non-Part D commercial market. On average, Part D lowered retail prices for commercial insureds by 5.8% to 8.5%. The cost-savings to the commercial market amount to $3bn per year, which approximates the total annual savings experienced by Part D beneficiaries who previously lacked drug coverage.
Keywords: Medicare Part D; health insurance; bargaining power; drug prices; external effects
JEL Codes: H57; I11; I18; L11; L51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Part D enrollment (I18) | negotiated drug prices (P22) |
| Part D enrollment (I18) | pharmacy profits (D33) |
| Part D enrollment (I18) | retail prices for non-Part D enrollees (D49) |
| Part D enrollment (I18) | retail prices for elderly non-Part D enrollees (P22) |
| Part D enrollment (I18) | bargaining power of insurers (G52) |
| bargaining power of insurers (G52) | commercial market prices (D49) |