So, let's deconstruct this fear for innovation. If our definition of innovation is putting out me-too compounds that bring marginal, if any, improvements to those that already exist, then we should definitely worry. If, on the other hand, we define innovation as bringing novel entities to market that truly meet health needs, then I think we can sleep soundly knowing that government funded healthcare will not do any worse damage than the manufacturers' risk averse behaviors and focus on returns have done.
Back in 2000 David Horrobin from the UK published a review on pharmaceutical innovation. In this paper he explains that large companies, in order to live up to growth expectations of their investors, need to maintain a certain pace of development. This pace, thus tied closely to marketing goals, is generally fueled by compounds with low risk of failure and high return potential. This translates to a flood of anti-hypertensives, lipid lowering agents, anti-depressants, as well as "life style" therapies (think Viagra). And if you want to bring up oncology therapeutics, where innovation is touted most loudly, ask yourself two questions: 1). how many of the novel compounds were developed in the academia, and 2). what outcomes they have improved for the patients, since many of them, despite the exorbitant price tags, only increase the survival by a couple of months on average.
So, there goes the innovation argument against universal healthcare. Next!