An Economic Analysis of the Joint Purchasing Safety Zone

Abstract

It is undeniable that health care costs have been increasing at an alarming rate. During the ten-year period between 1983 and 1993, the medical care component of the Consumer Price Index (CPI) rose at an average annual rate of 10 percent while the overall CPI increased by only 4.5 percent per year. These dramatic increases have obvious societal implications. For those without health insurance, a serious illness may mean personal bankruptcy. For those with health insurance coverage, premiums are rising while coverage is shrinking. Employers are struggling to continue providing health insurance to their employees. Irrespective of whose fault it really is, much of the blame has been directed at health care providers.Faced with mounting criticism regarding the costs of delivering health care, the industry struck back. It claimed that collaboration—not competition—was necessary to reduce health care costs and improve efficiency, but that antitrust uncertainty deterred such collaborative efforts.