Single Payer — Is Monopsony the Cure for a Perceived Insurance Monopoly?

It has become clear that the Obama administration and the congressional majority have decided that insurance companies are dragons they must slay in order to rescue the citizenry from a serious threat. That threat is now being defined as monopolistic behavior that results in a number of troublesome outcomes. The logic seems to be that because every insurance company is bad in some way they can be grouped together and be viewed as a monolithic threat. It is an easy jump from monolithic threat to monopoly and the administration really seems to believe that the insurance companies have a monopoly. In some cases the administration may have good cause to believe that. But the legal system has remedies for monopoly and the Federal Government itself has remedies it can bring to bear without a total remake of the health care system.

We have already discussed the slippery slope that could be created by a public option that instead of increasing competition it could actually diminish it. (No one knows for sure.) Single payer, the seeming ultimate goal, by definition eliminates all competition to a government run system. A true single payer system would be a government run monopoly where government agents would be making the health decisions that insurance companies are accused of making today. Monopolies are generally created when a dominant company uses questionable means to eliminate competitors so that it can control the market to its advantage. That advantage is often found in being able to raise prices in the absence of competition, fueling significantly higher profits. But monopoly power can also be created by a buyer, in this case the government, to control what it will pay for the services it buys from health care providers who may have no choice but to accept what the government offers or go out of business. Monopolistic power in the hands of a single buyer (in this case the government) is called Monopsony and it is no less dangerous to competition than monopoly. Monopoly can impact prices and supply. And fewer suppliers of care, also known as providers, would reduce access to care for everyone covered under the single payer system.

Ironically, if enough providers leave the system those remaining could be in a position of power where they could tell the government what price they will accept. If the government won't pay a higher price the provider can go out of business. This would put the government in a very difficult position causing them to either pay more, increasing health care costs, risk reducing access to dangerous levels or perhaps even feeling forced to use some version of eminent domain to take ownership of healthcare providers. None of this is written to suggest the existence of a government plot. It is however a reminder of the impact of unintended consequences and if we as a country have learned anything from our healthcare system it is the impact of unintended consequences.

The fact is that no one really knows what will happen if a government option is passed. But there are slippery slopes in all directions and the public option may be far from the panacea its supporters suggest. The real point here is that in a market any effort to reduce the number of price points can have an adverse affect on competition, prices and accessibility. Let's hope that we are not on the verge of learning this the hard way.

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Lynn James Everard

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