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Obamacare vs. Medical Innovation: You Can’t Have Both

In The Wall Street Journal, Scott W. Atlas of the Hoover Institution discusses various government policies that are threatening medical innovation. He identifies Obamacare, for example, as a culprit:

According to Congressional Budget Office estimates, the new health-care law will levy more than $500 billion in new taxes over its first 10 years to help pay for insurance subsidies and Medicaid expansion. These new taxes include significant levies on key health-care industries, such as manufacturers of medical devices and drugs, and their investors.

As a result, small and large U.S. health-care technology companies are moving R&D centers and jobs overseas. The CEO of one of the largest health-care companies in America recently told me that the device tax his company paid last year exceeded his company’s entire R&D budget. Already a long list of companies — including Boston Scientific, Stryker and Cook Medical — have announced job cuts and plans to open new centers for R&D, manufacturing and clinical trials overseas.

Dr. Atlas sees Obamacare’s impact on medical innovation as an unintended consequence of the law. But I challenge this view. Achieving Obamacare’s goal requires the stunting of medical progress.

Obamacare’s major goal is to give people “equal access” to health care—that is, the right to access medical services even if they can’t pay for those services. But somebody has to pay, and if it’s not the person consuming the care, it’s everyone else who must foot the bill. Towards this end, Obamacare forces Americans — both individuals and companies — to sacrifice a portion of their earnings in order to pay for the health care (specifically, the health coverage) of others.

One type of company that Obamacare hits particularly hard is the medical device companies Dr. Atlas mentions. The medical device tax is a 2.3% excise tax on all medical device sales. This may sound small, but since the tax is not on profits but total sales, it can actually exceed a company’s profits and push it into the red. This is what’s happened to several device manufacturers already.

So what is the predictable result of imposing high taxes on companies that produce medical devices? Well, consider the source of medical progress. Companies innovate a) when they have earned enough profit to be able to afford to put aside some of it for the discovery and production of new products, and (b) when there exist those who have enough wealth to be able to actually afford these new, inherently expensive products. In other words, medical progress comes out of people’s financial surplus. But that surplus is precisely what Obamacare is committed to depleting in order to achieve its goal.

It is no wonder that health care technology companies are fleeing America. The message Obamacare sends them (which we, as a culture, to the degree we support the law, stand by): Americans are not interested in the development of new and better medical treatments. But if we do value medical progress — and we should — it’s that attitude and the policies it leads to that we must challenge.