Postrel on Medical Innovation

Virginia Postrel has an excellent column in The Atlantic on the problems of centralized health systems. She discusses her experience with Herceptin, an effective but expensive breast cancer drug which has been the object of much controversy here in New Zealand. This nicely illustrates the frustration she expresses so brilliantly in The Future and its Enemies over ‘the one best way’ mentality that collective decision-making entails.

The American health-care system may be a crazy mess, but it is the prime mover in the global ecology of medical treatment, creating the world’s biggest market for new drugs and devices. Even as we argue about whether or how our health-care system should change, most Americans take for granted our access to the best available cancer treatments—including the one that arguably saved my life. […]

The good thing about a decentralized, largely private system like ours [i.e. American] is that health care constantly gets weighed against everything else in the economy. No single authority has to decide whether 15 percent or 20 percent or 25 percent is the “right” amount of GDP to spend on health care, just as no single authority has to decide how much to spend on food or clothing or entertainment. Different individuals and organizations can make different trade-offs. Centralized systems, by contrast, have one health budget. This treatment gets funded, and that one doesn’t.

If I lived in New Zealand, I wouldn’t be dead, just a lot poorer. But if every place were like New Zealand, far fewer complex new drugs would get developed in the first place. And my odds of survival would be much, much lower.

Indeed. Countries with state-funded health systems are in a sense free-riding on the innovative capacity of the American system. I suspect this would be true of any goods. A country which stifles innovative effort at home could still reap the benefits of technological progress abroad if it didn’t restrict imports. Unfortunately, innovation-stifling policies and protectionism tend to go together. 

Postrel responds to critics here.

One Response

  1. The US does overspend on health care but that’s mainly because of the tax system. Health care is mostly provided by employers so is effectively paid (in the form of lower salaries) out of pre-tax income. Other spending is naturally paid out of after tax income. So there is higher than optimal health spending relative to other priorities.

    The legal environment, i.e. the size of tort judgments and the absence of a ‘loser pays’ rule also increase frequency and cost of litigation and hence doctor’s insurance and so they charge more.

    Other than that the US system is basically ok.

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