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Insurers' Negotiating Leverage And The External Effects Of Medicare Part D

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Executive Summary

Public financing of private health insurance may generate external effects beyond the subsidized population, by influencing the size and bargaining power of health insurers. The authors test for this external effect in the context of Medicare Part D. They 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 insured's 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.

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