Flash Of Genius

by Patrick Appel

Ezra Klein addresses the innovation question:

Like Kevin Drum, there's one objection to a national health-care system that I find kind of interesting. As the argument goes, the United States overspends on health-care insurance. But that overspending has a point. It supercharges innovation. The rest of the world, in fact, free rides off of the high prices we pay for new drugs and ingenious technologies. That's not a great deal for us, but it's better than the grim future that awaits us in a world where the United States is not massively overpaying, and innovation thus grinds to a global halt.

The problem with that objection is that it's all theory.

I've never seen empirical evidence quantifying the benefits of domestic overpayment, nor the cost to innovation of, say, a government health-care system that cut spending by 15 percent. Similarly, you'd also want to consider whether further drug innovation was the most productive use of those dollars. Out of every $100 we spend paying more for drugs and devices than other countries, would those last $8 do more good contributing to "innovation" (along with profits, advertising, me-too drugs, etc) or funding early childhood education? Or cutting taxes?

Robert Waldmann also responds by pointing to government funded research. It's true that very important basic research is done by the government, but the private sphere also plays an essential role during the final stages of development. The idea that health care will stifle innovation relies on the idea that government will take over private enterprise and control costs. But health care spending is going to grow, hopefully less sharply, even if this bill passes. If the rewards for innovation are still in place, and growing health care expenditures would seem to guarantee that, why would innovation dry up? Jonathan Cohn addressed this topic a few years ago.