The Effect of Provider Control of Blue Shield Plans on Health Care Markets

RICHARD J. ARNOULD, LAWRENCE M. DeBROCK

Research output: Contribution to journalArticlepeer-review

Abstract

Blue Shield plans often are granted regulatory advantages by the states in which they operate. Run efficiently, such not‐for‐profit firms should use these lower costs to eliminate their less advantaged rivals, the commercial insurers. However, these higher‐cost commercial providers have been able to offer insurance coverage at prices competitive with the Blues, as evidenced by the fact that Blue plans have, on average, less than 50 percent market share. Similar prices with lower overall costs implies that economic rents are being earned, rents which a not‐for‐profit firm cannot distribute to owners. In this paper we argue that when there are competing goals among the groups controlling the Blue Shield plans, the different possible “uses” of the regulatory advantage become endogenously determined, necessitating the use of simultaneous equation estimation. Testing this model we find the major effect of doctor‐control of Blue Shield plans is to raise doctors' fees while lowering the amount of rents captured by both consumers and administrators.

Original languageEnglish (US)
Pages (from-to)449-474
Number of pages26
JournalEconomic Inquiry
Volume23
Issue number3
DOIs
StatePublished - Jul 1985
Externally publishedYes

ASJC Scopus subject areas

  • Business, Management and Accounting(all)
  • Economics and Econometrics

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