Private Health Insurer Incentives, Benefits, and the Case of Prescription Opioids

Two types of private health insurance plans play important roles in the U.S. Medicare program: integrated Medicare Advantage plans that bear risk for the full range of covered services, including prescription drugs, and stand-alone Part D plans that cover only prescription drugs. Because of the difference in the risks they bear, these two types of plans face different incentives regarding the design of their benefits and the management of utilization. To the extent that the use of prescription drugs affects spending on other types of care, Medicare Advantage plans should have an incentive to take account of such externalities, while stand-alone Part D plans should not. Previous research has found that integrated plans provide more generous coverage for drugs that, when taken regularly, reduce the use of costly inpatient care (Starc and Town 2018). This paper also compares integrated and stand-alone plans, but focuses on an example where greater drug utilization is often associated with worse health outcomes and therefore higher spending: opioids.

Although prescription opioids can serve as an effective tool in pain management, poorly managed opioid use can lead to adverse health outcomes and higher medical expenditures. Integrated Medicare Advantage plans will bear the cost of these downstream effects, while stand-alone Part D plans will not. This study will examine the impact of these differing incentives on benefit design for opioids using detailed plan-level data on the universe of all Medicare Part D plans from the Prescription Drug Plan Formulary, Pharmacy Network, and Pricing Information Files spanning 2008-2015. These data will be used to test whether Medicare Advantage plans are more likely to alter their benefits and employ other strategies, such as quantity limits or strict prior authorization protocols, so as to limit the utilization of prescription opioids. A 20 percent sample of Medicare claims data from 2008-2015 will then be used to test for differences between integrated and stand-alone plans in terms of opioid utilization, opioid-related emergency department use, and related medical services. This study adds to a growing literature on the welfare implications of health plan benefit design.