Upshot extra: The advantage of combining drug and non-drug benefits

I have a piece on The Upshot today about the CVS-Aetna merger. With my concurrence, the editors cut a rhetorically unnecessary paragraph. Not wanting anything to go to waste, here it is:

Traditional Medicare enrollees in that program can sign up for stand-alone prescription drug plans, which are not liable for non-drug spending. A study by economists Amanda Starc, of Northwestern’s Kellogg School of Management, and Robert Town of the University of Texas, found that Medicare’s stand-alone drug plans cover drugs less generously that they otherwise would if they accounted for non-drug health care spending. In doing so, they end up costing traditional Medicare over $400 million per year. Another study by Ms. Starc and Kellogg School colleagues David Dranove and Christopher Ody, found that when states shift provision of Medicaid drug benefits to private organizations responsible for managing non-drug benefits too, program spending goes down.


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