Competition between non-profit and for-profit health insurers

This study investigates the effects of tax, regulatory, and reimbursement policies and other factors exogenous to the health insurance market on the relative price (to commercial insurers) paid by Blue Cross plans for hospital care, their administrative expense and accounting profits, premiums, and ultimately Blue Cross market share. We specify and estimate a simultaneous equation model to assess interrelationships among these variables. We conclude that premium tax advantages enjoyed by the Blues have virtually no effect on the Blues' premiums or their market shares. A Blue Cross plans' market share has a positive effect on the discount it obtains from hospitals as does coverage of Blue Shield charges by a state-mandated rate-setting plan. An upper bound on the effect on the Blue Cross market share of covering Blue Cross under rate-setting but excluding the commercials from such coverage is seven percentage points. Tests for administrative slack in the operation of Blue Cross plans yield mixed results.