Medicare Pharmaceuticals

Too much competition?

Rarely due consumers think that too much competition is a problem.  According to the Centers for Medicare and Medicaid Services (CMS), however, this is a major issue for consumers when they choose Part D prescription drug health plans.  Avalere reports that:

Proposed revisions to the meaningful differences policy will restrict the market’s top sponsors from offering more than two plan options in a given Part D region, leading to significant consolidation in CY 2016 among the top sponsors. Additionally, the proposed rule will limit the ability of several sponsors to offer low-cost enhanced PDPs that attract cost-conscious enrollees.

In essence, these plans would be limited to one basic and one enhanced plan per region.  Why would CMS limit choice?  One reason is that they worry about risk segmentation. The sickest patients may choose plans with lower cost sharing but higher premiums, which could create an adverse selection death spiral.  To date, however, this has not been a large issue for Medicare and it is unclear what the true benefit would be.  Reducing cognitive strain on consumers may also be a laudable goal since choosing Part D plans is often difficult for the elderly (and non-elderly).  Reducing choice may be an optimal partial equilibrium strategy, it is certainly not a good general equilibrium strategy as it may reduce entry into the market and drive up costs.

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