A1349
Title: Anti-competitive effects of common ownership in Medicare Part D
Authors: Jaehak Lee - University at Albany, SUNY (United States) [presenting]
Chun-Yu Ho - (United States)
Pinka Chatterji - University at Albany SUNY (United States)
Abstract: The anti-competitive effect of common ownership is once again in the limelight. While several studies have explored the effects of common ownership in markets such as U.S. airlines and the cereal industry, the focus on the medical insurance market has been lacking. The aim is to fill that gap by developing reduced form and structural models to investigate the presence of the common ownership hypothesis and its potential anti-competitive effects on social welfare. The findings reveal that common ownership plays a significant role in driving the prices of prescription drug plans (PDP) in the Part D market. This validates the idea that as the level of common ownership increases, firms' internalization also grows, leading to higher premiums for these plans. Furthermore, the effects are supported by the non-nested test of a recent study. The results of the counterfactual analysis suggest that consumer welfare under common ownership is reduced by an average of 63.73 dollars per Part D eligible. At the same time, insurers' profits increase by 14.97 dollars per Part D eligible. This results in an overall loss of 78.1 million dollars in total surplus for each CMS region every year. Additionally, we found that the presence of not-for-profit firms in a region mitigates the loss in consumer surplus, and regions with a higher ratio of African Americans tend to experience a larger gap in consumer welfare.
