Pharmacy Benefit Managers and Their Impact on Drug Pricing in Insurance
The Congressional Budget Office’s Panel of Health Advisors received key insights from a study by LDI Senior Fellow Abby Alpert on pharmacy benefit managers' (PBMs) impact on drug pricing within the insurance sector. The research underscores how PBMs, who negotiate rebate agreements for insurers, influence insurance premiums through their ownership structures.
The study on Medicare Part D insurers identified notable premium hikes for companies utilizing PBMs owned by competitors, highlighting potential conflicts of interest. Alpert noted that PBMs provided affiliated insurers with higher rebates while charging competitors more for administrative services. This led to significant premium increases for non-integrated plans, particularly after UnitedHealth's acquisition of Catamaran, reshaping Medicare Part D's market dynamics.
Data from 2010 to 2018 indicated a dramatic rise in insurer integration with PBMs, with 80% of beneficiaries enrolled with such insurers by 2018, up from 30% in 2010. UnitedHealth's 2015 acquisition of Catamaran ended standalone PBM presence, forcing insurers to partner with rival PBMs, transforming the operational landscape for insurance providers lacking in-house PBMs.
The study revealed that integrated insurers did not pass cost efficiencies onto consumers through reduced premiums. Instead, premiums remained stable even after consolidating PBM operations. Nonintegrated insurers experienced a 42% premium increase following the UnitedHealth-Catamaran merger, despite potential market power gains for integrated insurers not translating into consumer savings.
Regulatory Oversight and Market Implications
Regulatory oversight remains crucial, as Alpert emphasized, to monitor industry consolidation. Concerns over potential consumer cost increases due to market concentration are significant for insurance professionals. Legislative measures, like the Consolidated Appropriations Act of 2026, seek to boost transparency and curb preferential treatment in PBM operations, though these do not currently address insurers with PBMs.
Further analysis of the commercial market continues, with significant mergers such as Cigna’s acquisition of Express Scripts and Aetna’s acquisition of CVS. These trends highlight ongoing insurer-PBM integration impacts on market premiums, prompting ongoing evaluation by industry experts. The research was detailed in the January 2026 issue of the American Economic Journal: Applied Economics under the title “Disadvantaging Rivals: Vertical Integration in the Pharmaceutical Market.”