Monopolies might not work, but monopsonies might

Matt Yglesias notes that Rep. Ryan defended the breaking up of Medicare today by arguing against monopolies:

Talking to Mario Bartiromo at today’s Fiscal Summit, Representative Paul Ryan offered a number of arguments in favor of repealing Medicare and replacing it with coupons to partially offset the purchase of private health insurance. One such argument that I found particularly curious was the idea that “monopolies don’t work.” For one thing, obviously Medicare’s customers seem to like it pretty well. That’s why Ryan is (somewhat disingenuously) running around trying to assure people over the age of 55 that nothing’s going to change for them. By contrast, everyone hates their private health insurance.

Here’s the thing: a single-payer health care system isn’t a monopoly; it’s a monopsony:

Monopsony is a state in which demand comes from one source. If there is only one customer for a certain good, that customer has a monopsony in the market for that good.

Analogous to monopoly, but on the demand side not the supply side.

A common theoretical implication is that the price of the good is pushed down near the cost of production. The price is not predicted to go to zero because if it went below where the suppliers are willing to produce, they won’t produce.

Now there are arguments to be made against monopsonies, especially from those providing the goods being sold (providers, hospitals, pharmaceutical companies, etc). But what a true single-payer monopsony insurance company would be really good at is driving down the price of care. Moreover, if that insurance company were non-profit (government), then it could pass along that savings on to customers (all of you).

There are valid arguments against Medicare and government as cost controls, but its monopsony power isn’t one of them.

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