Posted on November 12, 2007

Does universal health care suppress innovation?


Creative Destruction

The best case against universal health care.

By Jonathan Cohn
The New Republic
November 12, 2007

But one argument against universal health insurance isn’t so easy to dismiss: the argument about innovation and the cutting edge of medical care. It goes more or less along the lines of my conversation with Mike Kinsley: In a universal coverage system, the government would seek to limit spending by forcing down payments to doctors and pharmaceutical companies, while scrutinizing treatments for cost-effectiveness. This, in turn, would lead to both less innovation and less access to the innovation that already exists.

But it’s one thing to say that universal coverage could lead to less innovation or reduce the availability of high-tech care. It is quite another to say that it will do those things, which is the claim that opponents frequently make. That argument requires several leaps of logic, many of them highly suspect. The forces that produce innovation in medicine turn out to be a great deal more complicated than critics of universal coverage seem to grasp. Ultimately, whether innovation would continue to thrive under universal health care depends entirely on what kind of system we create and how well we run it. In fact, it’s quite possible that universal coverage could lead to better innovation.

The single biggest source of medical research funding, not just in the United States but in the entire world, is the National Institutes of Health (NIH): Last year, it spent more than $28 billion on research, accounting for about one-third of the total dollars spent on medical research and development in this country (and half the money spent at universities). The majority of that money pays for the kind of basic research that might someday unlock cures for killer diseases like Alzheimer’s, aids, and cancer. No other country has an institution that matches the NIH in scale. And that is probably the primary explanation for why so many of the intellectual breakthroughs in medical science happen here.

There’s no reason why this has to change under universal health insurance. NIH has its own independent funding stream. And, during the late 1990s, thanks to bipartisan agreement between President Clinton and the Republican Congress, its funding actually increased substantially—giving a tremendous boost to research. With or without universal coverage, subsequent presidents and Congress could ramp up funding again—although, if they did so, they would be breaking with the present course. It so happens that, starting in 2003, President Bush and his congressional allies let NIH funding stagnate, even though the cost of medical research (like the cost of medicine overall) was increasing faster than inflation. The reason? They needed room in the budget for other priorities, like tax cuts for the wealthy. In this sense, the greatest threat to future medical breakthroughs may not be universal health care but the people who are trying so hard to fight it.

The ideal would be to come up with some way of achieving the best of both worlds—paying for innovation when it yields actual benefits, but without neglecting less glitzy, potentially more beneficial forms of health care. And that is precisely what the leading proposals for universal health care seek to do. All of them would establish independent advisory boards, staffed by leading medical experts, to help decide whether proposed new treatments actually provide clinical value.

Of course, the idea of involving the government in these decisions is anathema to many conservatives—since, they argue, the private sector is bound to make better decisions than a bunch of bureaucrats in Washington. But, while that’s frequently true in economics, health care may be an exception. One feature of the U.S. insurance system is its relentless focus on short-term good. Private insurers have little incentive to pay for interventions that don’t yield immediate benefits, because they are gaining and losing members all the time. As a result, money invested on patient health may very well help a competitor’s bottom line. What’s more, the for-profit insurance industry—like the pharmaceutical and device industries—responds to Wall Street, which cares more about quarterly filings than long-term financial health. So there’s relatively little incentive to spend money on the kinds of innovations that yield long-term, diffuse benefits.

The government, by contrast, has plenty of incentive to prioritize these sorts of investments. And, in more centralized systems, it can do just that. Several European countries are way ahead of us when it comes to establishing electronic medical records.

Another virtue of more centralized health care is its ability to generate savings by reducing administrative waste. A universal coverage system that significantly streamlined billing (either by creating one common form or simply replacing basic insurance with one, Medicare-like program) and cut down on the need for so many insurance middle-men would leave more resources for actual medical care—and real medical innovation.

… the truth about universal health insurance: You don’t have to choose between universal access and innovation. It’s possible to have both— as long as you do it right.


By Don McCanne, MD

You should immediately download the entire article and save it for a time that you can read it in its entirety. More importantly, the full article should be used in your advocacy work to explain why innovation would not be suppressed - and actually may be made more efficient - by enactment of a universal health care program.

The fundamental flaw in the argument that optimal innovation is possible only in a privately financed health system is the presumption that the quest for profit - the hugh profits characteristic of Wall Street supported firms - is the primary driving force behind innovation. It ignores the fact that the health professions really do aim for a higher goal than mere maximal profit. Individuals involved in research and in health care delivery are driven primarily by their altruistic goals of providing the best health care attainable.

Jonathan Cohn’s article helps us to understand this difference. Reducing suffering and saving lives through innovation is a much greater reward than the mere creation of personal mega-wealth.