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

Abstract:     
I study the effect of health insurance expansions on medical innovation. Innovation by practitioners creates important roles for local patient flows and payment systems as drivers of medical technology development. I show that, over the 15 years following Medicare and Medicaid's passage, U.S.-based medical-equipment patenting rose by nearly 50 percent relative to both other U.S. patenting and foreign medical-equipment patenting. Surges in medical-equipment patenting were largest in the states most significantly affected by the Great Society programs. No surge occurred among pharmaceutical patents, for which markets were not directly affected. Subsequent expansions in insurance against health care costs are also associated with increases in U.S.-based patenting relative to foreign patenting in the relevant areas. The dynamic effect of U.S. insurance expansions may account for 25 percent of recent global medical-equipment innovation and 15 percent of the rise in U.S. health spending in hospitals, physicians' offices, and other clinical settings from 1960 to 2010.

Number of Pages in PDF File: 79

Keywords: Health Insurance, Government Policy, Innovation and Invention, Government Expenditures and Health

JEL Classification: I13, O38, O31, H51

working papers series