Monopoly, monopsony and contestability in health insurance: A study of Blue Cross plans

As dominant sellers of health insurance and buyers of health services, Blue Cross and Blue Shield have potential monopoly and monopsony power The credible threat of entry resulting from the increased competitiveness of these markets in the 1980s may have produced competitive outcomes-reduced prices, improved quality and efficient 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. Our findings suggest that steps to enhance the contestability of health markets may be a better response than regulation.