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The Effect of U.S. Health Insurance Expansions on Medical Innovation

  • Jeffrey Clemens

I study the channels through which health insurance influences medical innovation. Following Medicare and Medicaid's passage, I find that U.S.-based medical-equipment patenting rose by 40 to 50 percent relative to both other U.S. patenting and foreign medical-equipment patenting. Within the United States, increases in medical-equipment patenting were most dramatic in states where the Great Society insurance expansions were largest and in which there were large baseline numbers of physicians per resident. Consistent with historical case studies, Medical innovation's determinants extend beyond the potential revenues associated with global market size; a physician driven process of innovation-while-doing appears to play a central role. An extrapolation of the evidence suggests that the last half century's U.S. insurance expansions have driven 25 percent of recent global medical-equipment innovation. In a standard decomposition of health spending growth, this insurance-induced innovation accounts for 15 percent of the long run rise in U.S. health spending in hospitals, physicians' offices, and other clinical settings.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19761.

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Date of creation: Dec 2013
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Handle: RePEc:nbr:nberwo:19761
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