Managed care, market power, and monopsony

Area of Science:

• Health Economics
• Microeconomic Theory
• Antitrust Policy

Background:

• Managed care insurance is prevalent in healthcare markets.
• The potential for market power abuse by insurers, specifically monopsony, warrants investigation.
• Existing antitrust frameworks may not adequately address monopsony in healthcare.

Purpose of the Study:

• To theoretically examine the possibility of monopsony behavior within managed care insurance.
• To analyze the welfare implications of managed care plans wielding market power.
• To propose a test for identifying welfare-reducing monopsony versus pro-competitive effects.

Main Methods:

• Application of microeconomic theory to model insurer behavior.
• Analysis of the impact of insurer market power on consumer and supplier welfare.
• Theoretical framework to distinguish monopsony from provider monopoly.

Main Results:

• Managed care monopsony can increase consumer welfare but necessarily reduces overall economic welfare.
• A test for monopsony is proposed: declining input quantities under increasing marginal costs indicates monopsony.
• Lower provider prices translating to lower premiums can signal welfare-reducing monopsony, especially for nonprofit plans.

Conclusions:

• Managed care plans using market power to lower costs may harm medical workers and consumers.
• Current antitrust policy is ill-equipped to handle healthcare monopsony.
• Modification of antitrust policy is suggested to address monopsony in healthcare markets.