We study the effect of privatizing Medicaid drug benefits on drug prices and utilization. Drug spending would decrease by 21.3 percent if private insurers administered all drug benefits. One-third of the decrease is driven by private insurers' ability to negotiate prices with pharmacies. The remaining two-thirds is driven by the greater use of lower cost drugs, such as generics, and is only realized in states that give private insurers the flexibility to design drug benefits. Privatization does not reduce prescriptions per enrollee and spending cuts are smaller for drugs that lower medical spending.
Dranove, David, Christopher Ody, and Amanda Starc.
"A Dose of Managed Care: Controlling Drug Spending in Medicaid."
American Economic Journal: Applied Economics,
Insurance; Insurance Companies; Actuarial Studies
National Government Expenditures and Health
Analysis of Health Care Markets
Health Insurance, Public and Private
Health: Government Policy; Regulation; Public Health
Welfare, Well-Being, and Poverty: Government Programs; Provision and Effects of Welfare Programs
Chemicals; Plastics; Rubber; Drugs; Biotechnology