A combination of legal rules and institutional forces pushes health plans to cover nearly every medical innovation. The result is that many Americans are effectively forced to over-insure themselves for coverage of some therapies they do not much value. At the same time, others might be willing to spend even more on health plans that would cover therapies that are not considered medically necessary or that have not yet been developed. Technology developers thus receive distorted signals about the size of the market for new innovations, leading them to develop medical treatments that are not in line with what Americans would demand in a well-functioning market.
Bagley, Nicholas, Amitabh Chandra, and Austin Frakt. "Correcting Signals for Innovation in Health Care." Hamilton Project, October, 2015.