By Emmett Allen
Healthcare is a central issue for the Democratic Presidential candidates. Among the most prominent healthcare reform proposals is single-payer healthcare, a system in which private health insurers would be eliminated and the government would provide health insurance for everyone in the United States. Under single-payer healthcare, private healthcare would no longer be available for purchase, with the possible exception of specific supplemental insurance plans. Rather, some combination of budget cuts, tax raises, or deficit increases would fund government-distributed healthcare, similar to the Medicare health insurance plans given to seniors, for all U.S. citizens. This system has also been dubbed “Medicare for All,” named for a bill first introduced by Sen. Bernie Sanders (I-VT) in 2017 that would implement a single-payer system. Senator Sanders’ bill has been endorsed by multiple prominent senators who are vying for the Democratic presidential nomination: Sens. Elizabeth Warren (MA), Cory Booker (NJ), and Kamala Harris (CA) have all endorsed the bill. Proponents commonly argue two key points: first, that healthcare is a right that all humans deserve, and second, that Medicare for All would lower medical prices. The first point is subjective; you either agree or you don’t. With the second point, however, there is greater room for disparities in opinion. As the 2020 election nears, it is important to think carefully about whether this second claim holds water.
The core economic theory behind single-payer healthcare is that it would create a monopsony in the healthcare market. A monopsony is the inverse of a much more common term, monopoly. While a monopoly market has only one seller, a monopsony has only one buyer. Just as a monopoly is able to raise prices because it has more market power as the only seller, a monopsony buyer is able to lower prices because it is the sole buyer. In the instance of Medicare for All, the government would be the sole buyer in the healthcare market—a monopsony. Because the government single-payer system is buying all services from hospitals, doctors, and pharmaceutical corporations, the government should in theory be able to leverage better prices. The theory is sound—an ideal government would be able to lower healthcare costs for everyone with monopsony power. However, does that economic theory hold up when applied to reality?
While the economic forces of a monopsony single-payer healthcare system should push the prices of everything from X-rays to chemotherapy down, political forces could interfere with these price drops. The main potential for political interference comes from the lobbying influence of the healthcare and pharmaceutical industries at the national level. Companies across the medical industries will of course want to fight a single-payer system; if a single-payer healthcare system did constitute an effective monopsony and lead to lower prices, medical companies would largely foot the bill for that price cut. This is where it becomes difficult for the government to make healthcare cheaper by exercising a monopsony: while the government tries to use market leverage to lower prices, the healthcare and pharmaceutical companies they’re negotiating against will be pressuring the government to keep those prices high. Sure, the political leaders in charge of single-payer healthcare would have greater control over market prices that should allow them to keep healthcare costs low. At the same time, however, political pressure from influential pharmaceutical and healthcare industry lobbyists would push political leaders in the opposite direction, towards higher prices and greater single-payer spending. The government would have more economic power under a single-payer system, but would the influence of lobbyists and pharmaceutical companies handcuff the executive branch, preventing it from exercising this leverage over prices? I would argue that, unfortunately, the influence of healthcare and pharmaceutical companies in Washington is absolutely sufficient to hinder the ability of a single-payer system to lower prices.
The primary source of the pharmaceutical and healthcare industries’ influence on the national government is the massive scale of their lobbying organizations: healthcare and pharmaceuticals stand out as industries that spend big on influencing legislators and bureaucrats alike. From 1998-2018, the pharmaceutical/health products industry spent more money on lobbying than any other industry, with a spending total of more than $4 billion, while the insurance industry came in second with $2.8 billion of spending. For reference, the oil and gas industries spent only around $2.2 billion on lobbying over this period. This intense use of resources for lobbying goes a long way in ongoing corporate efforts to make medicines more easily approved and keep prices high. In total, 97 current US senators and 90% of the US House of Representatives have received campaign contributions from pharmaceutical companies. The influence of the pharmaceutical and the healthcare industries on Congress is bipartisan. The legislature cannot be expected to develop a single-payer healthcare system that reduces prices if companies that have a vested interest in maintaining high prices play a major role in the legislative process.
The argument that the healthcare industry would lobby Congress to keep drug prices high is not just a hypothetical either. Already outside of a single-payer system, the influence of lobbyists has been effective in pushing up drug prices. In 2006, the Bush administration allowed a provision stating that the Centers for Medicaid and Medicare Services could not negotiate medicine prices for Medicare Part D. President Bush allowed this provision in order to get support from the pharmaceutical industry for the bill creating the Part D program. As a 2015 economic paper assesses, this provision’s restrictions on drug price negotiation cost American citizens $15.2-16 billion in savings. This is a perfect demonstration of why the influence of pharmaceutical and medical companies prevents the government from exercising its market power: because of pharmacy influence, the Bush administration forbade negotiation of price altogether. This level of influence has not changed since Mr. Bush’s era — if lobbyist spending is any indication, healthcare and pharmaceutical industries are stronger than ever.
There are two main goals a healthcare solution needs to accomplish: make healthcare universally available and cheaper overall. Single-payer healthcare undeniably accomplishes one of these goals. If healthcare were government-funded and -distributed, more people would have healthcare. However, in light of the influence over government that is wielded by healthcare and pharmaceutical companies, perhaps an alternative system would be more prudent. In theory, single-payer healthcare should give the national government monopsony power in the healthcare market, allowing it to lower costs to consumers. In reality, however, these same healthcare and pharmaceutical providers exercise great influence over the government that is supposed to be negotiating against them. Perhaps it is cynical to argue that single-payer healthcare would not work because the government is unable to effectively govern. However, until the influence of corporate lobbyists is substantially restricted, that cynicism seems warranted.