Heterogeneous effects of consolidation on premiums in Medicare Part D

Medicare Part D plans provide prescription drug coverage to 45 million seniors. The recent past has seen significant consolidation amongst plan providers, notable CVS's 2018 acquisition of Aetna and Cigna's 2018 acquisition of Express Scripts. In this paper, we analyze the effect of consolidation of standalone Part D plan providers on premiums using plausibly exogenous variation in concentration induced by the 2011 merger between CVS and Universal American. We find that the increase in concentration for standalone Medicare Part D plans that resulted from this merger led to higher average premiums, a total of nearly $170 million per year. We find further that, consistent with the assumptions behind standard antitrust practice, the effects of the increase in concentration were heterogeneous: moderately (or more) concentrated markets that saw a meaningful increase in concentration saw significant increases in premiums, while premiums in other markets did not change significantly.