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 purchas 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.
But what’s really analytically wrong here is that monopolies work great at buying things. What an insurance company does is sell coverage to patients and then buy health care services from health care providers. And the bigger the insurance company, the better the job it can do of driving a hard bargain. That’s the reason Medicare’s per unit costs are dramatically lower than the costs of any private insurance plan. If Medicare covered everybody in the whole country, that would obviously require higher tax revenue but it would drive per unit costs down. By contrast, Ryan’s plan to replace Medicare’s semi-monopsony with even more fragmented plans would drive per unit costs up. It’s true that it would create more budgetary headroom for lower taxes on rich people, but that’s another thing entirely.