Monopsony is a word that political observers need to learn, and that left-leaning activists need to learn to love.
Monopsony is the opposite of monopoly. Monopoly means a single seller, and monopsony means a single buyer. Buying stuff from a monopoly provider usually sucks, but being part of a monopsony is totally awesome.
Here are three monopsony buyers: CostCo, Amazon, Medicare.
Buying products and services through these organizations is cheaper than buying products on your own.
Why is this? Because Amazon represents a massive number of customers, they buy a crap ton of Beats By Dre headphones, and so they have more market power. Representing a huge pool of customers allows Amazon to drive a very hard bargain with Dr. Dre, and push down the cost of Beats By Dre headphones for Amazon’s customers.
This is also why Medicare does a better job of controlling costs than private insurance.
Like Amazon, Medicare’s large customer base gives it more market power to drive a hard bargain with health care providers, push down the cost of health care products and services for Medicare’s customers.
This is why Pat Toomey’s comments on Medicare, and the Republican agenda for Medicare, make no economic sense.
It’s not Medicare that’s unsustainable – it’s the price inflation of the stuff Medicare pays for.
The solution, then, is not to have fewer people enrolled in Medicare, but more. Fewer people shopping through Amazon would not make Beats By Dre headphones cheaper, and fewer people in the Medicare risk pool will not make health care prices lower.
The key difference between the parties on health care costs is that Democrats want Medicare to have more monopsony power to push down provider prices, and Republicans want it to have less.