Heterogeneous effects of consolidation on premiums in Medicare Part D

Does Consolidation in Insurer Markets affect Insurance Enrollment and Drug Expenditures? Evidence from Medicare Part D

“…Plan consolidation leads to productive efficiency. Hill and Wagner (2021) find that an increase in HHI raises the premium only for markets with a higher concentration of market share. Our paper contributes to the literature by extending the analysis beyond market-level outcomes to individual-level outcomes.…”

“…For HHI, we follow Dafny et al (2012) and Hill and Wagner (2021) to use simulated delta HHI (ΔSimHHI) to construct the IV. The first stage model for HHI is specified as follows:…”

“…We compute ΔSimHHI based on the identified nationwide M&As mentioned above. Dafny et al (2012) and Hill and Wagner (2021) employ a setting with one merger, but, in our setting, it is possible that there was more than one merger in a market within the same year. For this reason, we add up the simulated delta HHI calculated for each merger to obtain ΔSimH HI for each market in that year.…”

“…On the other hand, consolidation in insurer markets can lead to higher premiums because of market power (see Dafny et al 2012 andTrish andHerring 2015 for evidence on commercial insurance; Dafny et al 2015 for evidence on ACA Marketplace plans). Prior empirical research shows mixed effects of insurer market consolidation on premiums (see evidence in Scheffler et al 2016 for ACA Marketplace plans; Ho and Lee 2017 for commercial insurance; Chorniy et al 2020 andHill andWagner 2021 for Medicare Part D). We know much less, however, about the effects of insurer market consolidation on outcomes measured at the individual level -such as insurance enrollment decisions and individual drug expenditures -which are closely related to consumers' wellbeing.…”