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The Relation between the Blue Cross Market Share and the Blue Cross "Discount" on Hospital Charges

Roger Feldman and Warren Greenberg
The Journal of Risk and Insurance
Vol. 48, No. 2 (Jun., 1981), pp. 235-246
DOI: 10.2307/252738
Stable URL: http://www.jstor.org/stable/252738
Page Count: 12
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
The Relation between the Blue Cross Market Share and the Blue Cross "Discount" on Hospital Charges
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Abstract

This article examines the relation between the Blue Cross share of the private hospital insurance market and the Blue Cross "discount" on hospital charges. The discount is a potential competitive advantage accruing to Blue Cross plans, relative to commercial insurance companies, in markets where Blue Cross uses cost-based hospital reimbursement. Two hypotheses are tested using a simultaneous equations model: that Blue Cross plans are more likely to obtain a discount when their market share is large and that the discount further increases market share. The tests provide some evidence that the discount increases Blue Cross's market share, but market share is not responsible for Blue Cross's obtaining a discount. A discussion of these results suggests that Blue Cross plans use the market power implied by high market share to pursue other objectives, which may include unnecessary administrative expenses or cost control activities.

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