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

45 Pages Posted: 10 Aug 2010

See all articles by Darius N. Lakdawalla

Darius N. Lakdawalla

University of Southern California - Schaeffer Center for Health Policy and Economics; RAND Corporation; National Bureau of Economic Research (NBER)

Wesley Yin

Boston University

Date Written: August 2010

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.

Suggested Citation

Lakdawalla, Darius N. and Yin, Wesley, Insurers' Negotiating Leverage and the External Effects of Medicare Part D (August 2010). NBER Working Paper No. w16251. Available at SSRN: https://ssrn.com/abstract=1654238

Darius N. Lakdawalla

University of Southern California - Schaeffer Center for Health Policy and Economics ( email )

635 Downey Way
Los Angeles, CA 90089-3333
United States

RAND Corporation ( email )

P.O. Box 2138
1700 Main Street
Santa Monica, CA 90407-2138
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Wesley Yin

Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

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