Mergers in Medicare Part D: Assessing market power, cost efficiencies, and bargaining power

• Published in: International journal of industrial organization Vol. 68; p. 102548
• Main Authors: Chorniy, Anna, Miller, Daniel, Tang, Tilan
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01-01-2020
• ISSN: 0167-7187
• DOI: 10.1016/j.ijindorg.2019.102548

•We examine the effects that horizontal M&A activity amongst health insurers has on prices and coverage characteristics of prescription drug plans offered in the Medicare Part D market.•We uncover the interplay of the three channels: market power, cost efficiencies, and bargaining power.•We find that premiums increased in markets where merging firms overlapped.•We also find heterogeneous effects of mergers on drug access and out-of-pocket cost.
We empirically examine horizontal mergers amongst Part D insurers with the aim of assessing how market power, cost efficiencies, and bargaining power affect premiums and coverage characteristics, including drug access and out-of-pocket (OOP) cost. Our results reveal that market power raises premiums, but this is only a local effect that occurs in markets where the merging firms overlap. Mergers alter the bargaining process with upstream suppliers at both local and national levels, affecting drug access and OOP cost. We find evidence of cost efficiencies when firms restructure by consolidating their plan offerings.