Medical Technology Adds $23.6 Billion Annually to U.S. Incomes

Scholars at the Milken Institute have published an estimate of the net value to American society of four types of diagnostic and therapeutic technologies recently introduced. Their conclusion? That the net benefit of these technologies adds up to $23.6 billion, and increases federal income-tax receipts by $7.2 billion. Table ES1 shows the results by technology.

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Much of the benefit is due to increased labor-force participation, i.e., workers are more productive because of these technologies. I am more than a little wary of point estimates of such indirect benefits, but there is no doubt they exist. Indeed, I think the authors may have underestimated the benefits because they did not include the improvement in quality of life for (presumably retired) Medicare beneficiaries. This non-monetary benefit is just as important as the monetary benefit of taking fewer days off work. The fact that we finance it by taxing working people to provide the benefits to retired people is a separate issue.

(I should disclose that I was somewhat involved in this study before it was published. I was Vice-President, Research at the Advanced Medical Technology Association, AdvaMed, when AdvaMed agreed to invest in the research project.)

Comments (15)

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  1. Frank says:

    This is why I was initially thought the medical device tax in the ACA was counter-intuitive. Medical devices and technology are due to boom considering all the resources we have available to us. Moreover, there is a market for these devices as the population gets older and more people have access to affordable health insurance.

    I hope the tax doesn’t deter innovation and creation of these technologies because they have the potential to really curb healthcare costs in the long run.

  2. Raquel says:

    It is sad that what is driving this innovation and development is our unhealthy lifestyles.

    • Chris says:

      Not necessarily. Our population is getting older and that is a fact. In previous generations, this would have meant that the elderly had only a few years left to live. But we live in an age where we can not only prolong life, but extend a good quality of life as well. So it is inevitable that these new technologies are being made.

  3. Devon Herrick says:

    …the net benefit of these technologies adds up to $23.6 billion…

    Net societal benefits is a topic that I have always thought was a bogus measure for items that are both rival and exclusive. As you recall, a public good is non-rival and non-exclusive. Imagine television broadcast towers than beam TV signals into homes. Free entertainment (at least according to Romans), might reduce public drunkenness, burglary, vandalism, and cold entertain people (so they wouldn’t revolt).

    On the other hand, a private good is one you producers can exclude the benefits to only those willing to pay. Those willing to pay are likely those who stand to benefit.

    Back to the point; societal benefits are often really private benefits. Individuals working longer generally benefits them personally, but benefits society only marginally.

    That’s not to say the technologies above aren’t real benefits — they may be the aggregate sum total of private benefits.

    • John R. Graham says:

      They are entirely private benefits. By “American society” I just meant the total private benefit to working residents of the U.S., not worldwide.

    • Flyover Country American says:

      I agree, societal benefits are tough to calculate accurately, but its the sum of all of these private benefits that make up the $23 billion mentioned here. And, like Frank noted, any tax on medical devices sacrifices such societal and personal benefits in exchange for cheap tax revenue in the short-run. And that’s what taxes always do, they result in less of an activity.

      If the government really wanted to help society, they would let the free market work, without either taxing or subsidizing private transactions.

  4. Freedom Lover says:

    Medical, or any other, technology is always good for society. Innovation leads to a higher quality of life and makes such an improved life available at a lower cost, both to society and the individual. The government, of course, only cares about the tax dollars that such innovation generates for them. But the rest of us appreciate how the free market improves our lives.

    • Devon Herrick says:

      My only point (above) is that public health advocates, and advocates for public programs, often tout public spending programs as “investments” that generate huge societal benefits. But they erroneously net public costs with private benefits to assess net social benefits.

      For example, years before the ACA, advocates argued there would be billions and billions and billions (ala Carl Sagan) of societal benefits to providing universal coverage. Proponents claimed the billions and billions and billions in increased productivity (from not calling in sick because you now have health coverage) would more than offset the meager taxpayer cost of funding universal coverage.

      Of course, since employers would benefit the most (from lower absenteeism), they should willing submit to an employer mandate! Workers (those former slackers who are now be healthy under universal coverage), will pay more taxes on their higher incomes. They will have higher incomes because of their higher productivity — all due to universal coverage.

      Wow! Giving something away for free pays for itself! This argument sounds ludicrous. But this is basically the argument that was made years ago.

      Private benefits that are captured by private actors are best left to be funded by the private actors who stand to benefit. Public funding for programs that provide societal benefits should be limited to those things that conform to the definition of public goods.

      • John R. Graham says:

        I think when we use the word “employers” we get muddled, because there are lots of types of employers.

        Employers of low-skilled, low-paid workers see very high turnover. That would reduce an incentive to invest in the medical technologies described.

        Plus the lowest-paid workers have the opposite problem of the middle class: They are forced (via minimum wage) to take all their benefits as cash, whereas they might prefer to take some as non-cash benefits. If an employer of minimum-wage workers could reduce the money wage in exchange for benefits, he might be content to do so, depending on the characteristics of his workers and industry.

        (This introduces the mini-med plans into the discussion, too.)

  5. SPM says:

    Yes, such technology not only adds to quality of life and tax revenue to the government, but it also adds to personal incomes as this post points out.

    Thus, we, being greedy American capitalists, will seek to increase innovation even more. As Adam Smith said long ago, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”

    Yep, that’s how a true free market works. Government intervention distorts such benefits.

  6. Devon Herrick says:

    I agree that a tax reduces social benefits. Indeed, that’s a very good point. In order to generate (impossible to measure) social benefits in the form of universal coverage, Congress taxes medical devices. Medical devices are items that generate measureable social benefits. I’m not quibbling with the study. Only the convoluted way Congress justifies taxing something for “our” benefit.

  7. bob hertz says:

    1. Per John, the improvement in the quality of life for Medicare beneficiaries is real and dramatic.

    I can remember family gatherings when I was a kid in 1955. Most of my elderly relatives were in wheelchairs
    and/or wheezing.

    Today, the same family mix would have tennis players age 90.

    However, I do not see how this quality of life raises tax revenues by a nickel.

    2. Anyone who has supervised employees in education and public service knows that persons with health insurance take more sick leave, not less.

    That is because they have paid sick leave! It has nothing to do with health insurance.

    Run a restaurant some time…most employees never call in sick, at least until they quit.

    The productivity argument is bunk.

    • Devon Herrick says:

      …family gatherings when I was a kid in 1955. Most of my elderly relatives were in wheelchairs and/or wheezing.
      Bob,
      I suspect back in 1955 many of the older, male relatives (who would have been in their late 50s or older) where absent — having died of heart disease, stroke or cancer. I have had similar discussions with numerous middle-aged friends who relate stories of grandfathers who did not survive to see them born; or who died when they were young children.

      It amazes me how much life has changed in 60 years. A doctor I once worked with told me how cardiology was a difficult profession prior to the 1970s, because heart disease killed every patient a cardiologist saw within a year or two. My own grandfather hobbled around with arthritis and heart disease, finally dying of this third heart attack at age 79. We were never sure how he survived that long.

      Joint replacements especially have done more to improve disability-free years of life than probably any other technology. Mobility that allows activity also improves longevity.

      • John R. Graham says:

        And some of the healthiest ones would have been killed in action in WWII (like my great-uncle).

    • John R. Graham says:

      Thank you but I don’t think I follow. The high-skilled, highly-paid worker has a portfolio of benefits that include paid sick leave and health benefits. If the worker had health benefits but no sick leave, he would not take time off, right?

      So the productivity argument holds, because the factors are largely independent.