A term you might want to use when discussing a big problem of our time.
The largest health insurance companies are merging and forming a small group of giant companies with limited competition in the United States. The first two, the largest are Aetna and Humana. Already Health Net and Centene are talking merger as are Cigna and Anthem. Expect the same from UnitedHealth Group and WellCare.
A monopsony is economics for ‘a single supplier’. Where a union controls all the workers that a company or industry can hire, that union is a monopsonist. That is the case with the Teamsters union and the trucking industry. It is true among steel workers and for American auto companies. A monopsony generally creates monopoly conditions. Where the monopoly is the business that sells the goods or services produced by the monopsony.
In the utilities world, the government is the monopsony. It is a case where the government agency buys the utility’s output with the money that the government controls from the consumers. The government sets the prices acting on behalf of the consumers. Utilities are usually monopolies.
What we have now is that the federal government controls the healthcare market with Obamacare, Medicare and Medicaid. Since there is one giant buyer of medical services from the insurance companies, they benefit from consolidating. They don’t need separate billing, marketing, accounting and human resource departments so they consolidate. Ultimately, in the not too distant future, unless Obamacare is completely rewritten, we will have one or two large health insurance companies as the sole suppliers of health insurance.
Monopsony is not your friend if you like competitive pricing and a dynamic tech market. Remember Ma Bell. Think of Comcast.