Monopoly, Monopsony and Contestability in Health Insurance: A Study of Blue Cross Plans

Abstract

As dominant sellers of health insurance and buyers of health services, BlueCross and Blue Shield have potential monopoly and monopsony power. The credible threat of ent y resulting ?om the increased competitiveness of these markets in the 1980s may have produced competitive outcomes-reduced prices, improved quality and 4-ficient cost structures-even in a concentrated market. We find the plans used economies of scale and monopsony power to reduce administrative costs, provide payments and consumer premiums. Ourfindings suggest that steps to enhance the contestability of health markets may be a better response than regulation.

Market Structure and Hospital-Insurer Bargaining in the Netherlands

“…Examples are Feldman and Greenberg (1981), Adamache and Sloan (1983), Frech (1988), and Foreman et al (1996). These studies analyze the relationship between the market share of Blue Cross/Blue Shield and the hospital discounts from list prices.…”

Antitrust and Competition in Health Care Markets

“…79 Adamache andSloan (1983), Feldman andGreenberg (1981), Frech (1988), andForeman et al (1996) find a positive relationship between Blue Cross market share (in the insurance market) and the size of hospital discounts from list prices (or simply lower hospital prices). Melnick et al (1992) find a significant negative relationship between Blue Cross market share in the hospital and the hospital's negotiated prices.…”

“…This issue has been discussed in a number of articles [Feldman and Greenberg (1981), Adamache and Sloan (1983), Staten et al (1987), Pauly (1987), Staten et al (1987), Pauly (1988a, b, c), Frech (1988), Melnick et al (1992), Foreman et al (1996)] which have focussed on discounts obtained from providers by Blue Cross/Blue Shield plans. These studies have focused solely on the unilateral exercise of monopsony power.…”

Hospital selective contracting without consumer choice: What can we learn from Medi‐Cal?

“…Both these studies predate selective contracting, which diminishes the relevance of their empirical results. Foreman, Wilson, and Scheffler (1996) evaluate these same issues using more recent data, finding that high market-share plans indeed succeed at negotiating lower provider payments. But because their study fails to account for hospital competition, it is difficult to assess whether lower payments are a reflection of plan monopsony power, or a reflection of diminished provider market power on account of selective contracting.…”