Medicare beneficiaries could face higher premiums as major health insurers continue to acquire pharmacy benefit managers (PBMs). A January study published in the American Economic Journal: Applied Economics reveals a clear pattern: when insurers take over PBMs, rival plans pay more — and so do their members.
Overview: What the Study Found
Researchers examined how insurer-PBM vertical integration affects drug plan costs across Medicare Part D. Their findings point to a structural conflict of interest. Once an insurer owns a PBM, that PBM controls drug rebate negotiations and administrative fee structures. This control can work against competing insurers who still rely on that same PBM.
The Core Conflict
Study author Abby Alpert, PhD, a senior fellow at the University of Pennsylvania’s Leonard Davis Institute, explained the dynamics clearly. When a PBM’s parent company competes with other insurers, the PBM gains an incentive to tilt the playing field. It can pass a smaller share of drug rebates to rival plans or charge them steeper administrative fees. As a result, non-integrated insurers face higher costs — costs that often pass directly to enrollees through higher premiums.
How Insurer-PBM Mergers Drive Up Premiums
The study finds that Medicare Part D insurers still relying on a competitor-owned PBM saw notable premium increases. Moreover, these hikes were not marginal. They were significant enough to raise serious concerns about affordability and market fairness for Medicare enrollees.
Premium Hikes for Non-Integrated Plans
Plans that remained with rival PBMs after major acquisition deals experienced substantial cost increases. Independent Part D plans lost negotiating leverage as large integrated entities gained control over PBM services. Consequently, premiums rose across nonintegrated plans, reducing affordability for a vulnerable population already managing fixed incomes.
The UnitedHealth-Catamaran Case Study
One of the most striking examples the study highlights involves UnitedHealth Group’s 2015 acquisition of Catamaran, a large independent PBM. After this deal closed, monthly premiums for enrollees in nonintegrated Part D plans increased by $22, representing a 42% jump.
A 42% Premium Spike
That figure is significant. A $22 monthly increase translates to roughly $264 more per year for a Medicare beneficiary. For someone on a fixed income, this is a meaningful financial burden. Furthermore, the Catamaran acquisition marked a turning point: as independent PBMs declined in number, the leverage held by non-integrated insurers eroded alongside them.
Do Cost Savings Reach Beneficiaries?
One might expect that when an insurer integrates with a PBM, the cost savings would flow through to members. The study challenges that assumption directly. Dr. Alpert noted that savings achieved through integration did not consistently result in lower premiums for enrollees.
Integration Doesn’t Guarantee Savings
In practice, insurers that owned PBMs did capture administrative efficiencies. However, they did not always share these gains with their plan members. Instead, the savings tended to benefit the insurer’s bottom line rather than reducing the financial burden on beneficiaries. This finding raises questions about how regulators and policymakers should evaluate the consumer benefit claims made during merger approvals.
Vertical Integration’s Growing Reach in Medicare
The shift toward vertical integration in Medicare Part D has been dramatic. In 2010, only 30% of Part D beneficiaries were enrolled in plans managed by insurers with their own integrated PBM. By 2018, that figure had climbed to 80%.
From 30% to 80% in Eight Years
This rapid consolidation reshapes how drug pricing and plan management work across Medicare. As more enrollees fall under integrated insurer-PBM structures, fewer independent PBM options remain for non-integrated plans. Ultimately, reduced competition in PBM services tends to reduce bargaining power for smaller insurers — further concentrating cost pressures on their members.
Policy Response: Senate Action on PBM Mergers
Vertical integration between insurers and PBMs has attracted growing scrutiny on Capitol Hill. Senators have introduced legislation aimed at unwinding such mergers, citing concerns over competition and consumer protection in Medicare drug plans.
Legislative Pressure Builds
The bill reflects a broader push by lawmakers to address consolidation in healthcare markets. Advocates argue that separating PBMs from insurers would restore competitive balance and could lower costs for Medicare beneficiaries. Whether such legislation advances remains to be seen, but the momentum signals that policymakers are taking the study’s findings seriously.
What This Means for Medicare Beneficiaries
The implications of this research extend well beyond policy debates. For the roughly 80% of Part D enrollees now in integrated plans, the question of whether their insurer passes savings along remains largely unanswered. For those still in non-integrated plans, the cost pressures documented in this study are already a lived reality.
As insurer-PBM consolidation continues, beneficiaries, advocates, and regulators must all pay close attention to how premium trends evolve — and who ultimately bears the cost of vertical integration in American healthcare.
