Daniel P. Miller
In this paper, we examine the impact of horizontal mergers amongst insurers on competition in the Medicare Part D prescription drug market. Theory predictions about the effect of mergers on price and product quality are confounded by three competing forces: increased cost efficiency, market power, and bargaining power with upstream suppliers. Using panel data for the full set of plans offered by Part D insurers between 2006-2012, we use a differences-in-differences identification strategy to document the effect that merger activity has on plan pricing and drug coverage characteristics. We find that plans affected by a merger experience higher premiums as a result of increased market power. However, for merging insurers that restructure their plan offerings, price falls to offset the market power effect. The results on drug formulary measures show that merging on its own has no effect on the generosity of drug coverage. Yet for restructured plans, there are sizable merger effects on coverage in the form of reduced copay/coinsurance rates and increased scope in the set of covered drugs. The lowered prices and improved drug coverage for restructured plans suggest cost efficiencies and bargaining power with drug suppliers are a major source of gains stemming from mergers.
Chorniy, Anna; Miller, Daniel P.; and Tang, Tilan, "The Impact of Horizontal Mergers on Plan Premiums and Drug Formularies in Medicare Part D" (2013). Graduate Research and Discovery Symposium (GRADS). 35.