‘The US model of private health insurers is inefficient, expensive’

Joseph Stiglitz, the Nobel prizewinning economist has written several articles on the inequity in access to health and the flaws in the drug discovery process of pharmaceutical companies. On a recent visit to Delhi, Stiglitz spoke to Rema Nagarajan about the negative role of patents in drug discovery and the pitfalls of private insurance in health:

    Why have you been pitching for a single payer system for health insurance rather than a system where several private companies compete?
    The US model of private health insurers has been proven inefficient and expensive. Rather than provide better healthcare at lower costs, insurance companies innovate at finding better ways of discrimination. They are inefficient because they are trying to figure out how to insure people who don't need the cover and keep out people who need it. With many companies, they also need to spend on marketing and advertising. The incentives are all wrong and the transaction costs are very high and you have to give them a high profit. In health, social and private incentives are totally disparate. Competition does not work in healthcare especially in the health insurance market. Several countries like the UK, France and Sweden have a single payer system, differing only in the organisation of healthcare delivery.
    Several health insurance companies are setting up business here. Should India be worried?
    India would be in a terrible mess, given the size of its population, if it went down the wrong route (of private companies for health insurance). They should learn from the mess that the US has got into. Once the companies start making profits, special interests in politics will come into play and it will be difficult to get them out. In India, given the disparities in income, a single system for delivery might not work. So, it will probably need a mixture of public and private provision or maybe public healthcare for basic clinics and reimbursement for others, or the UK model where provisioning or delivery is also through public institutions.
    Areyouagainstintellectual property especially in health research into medicines?
    I am not against intellectual property (IP). But the benefits of IP have been exaggerated and the costs underestimated. IP creates monopolies. And it does interfere with economic efficiency by interfering with the flow of knowledge and the use of knowledge, particularly for developing countries. The TRIPS (trade-related aspects of intellectual property rights) agreement is trying to impose the same IP framework on everybody. The question is whether IP promotes innovation. Increasingly, the evidence is that it may actually impede innovation. It is leading to infinite negotiations around patents. More money is being spent on lawyers than on research. New ideas are the most important input into research. IP is making that input difficult to get. We need some IP. But we also need to find better ways of financing and incentivising research such as governmentsponsored research.
    Is it viable for governments to finance drug research?
    Yes, public financing of drug research is financially viable. In a system where government pays for drugs, it is in effect, the government or the public who pay for hugely expensive drugs. Drug companies greatly exaggerate the cost, especially on research. If you broke down their costs, you would see that basic research is done by the government. The applied research of a particular molecule is mostly done by small companies, often linked to universities, which is still private. But the biggest cost is testing of the drugs and that is usually blown up and often includes promotion costs.