Natural Limits to Healthcare Expense Growth?

[haha]

In another thread about the problem posed by rapidly growing healthcare costs, Martha said:

Steins Law better be right.  If I quit today, I figured my next year's medical costs with COBRA and estimated copays and deductible would be $15,700.  Inflation for our medical insurance and elsewhere in the market (an insurance agent tells me) has been at 14% a year.  If that rate of inflation continued, the yearly costs would double at about every five years.  In five years my costs would be $30,225; in ten years, $58,203; and n fifteen years, $112,066.

One way to look at this is how long can it go on? Even if policies continue to be as asinine as they now are,  not very long. Unless the medical sector starts generating large revenues from sources outside of the US economy, (maybe by selling US organs to oil sheiks) the medical economy must necessarily be parasitic on the rest of the US economy. This places a ceiling beyond which it absolutely cannot expand.

I made a few assumptions. 1-that the US econmy can average 5% growth overall. 2-That Martha's figure of 14% growth in medical expenditures is correct. In 2004, the medical economy was about 15% of the US GDP, which means all else is 85%.

US GDP in 2004 was approx. $11.75 trillion. Of this, $1.762 T was medical, $9.988T was all other economic activity.

If medical is increasing at 14%, then healthcare accounts for 2.1% of economic growth, leaving 2.9% for everything else. By the nature of exponential growth a faster rate of increase on a smaller base will eventually overtake a smaller rate of increase on an initially larger base. This means that healthcare will account for at a bit over 50% of all other GDP by 2014. By 2020 healthcare will have passed the total of all other economic activity. Can't happen folks. It isn't that I think it won't happen; it simply cannot happen because there would not be the income to support it. My guess is that we are getting very near the limit right now.

If the rest of the economy is more buoyant than I have guessed, it changes the crossover by a few years at most.

Does anyone think this is possible? If so, please tell me how.

H

 

[haha]

Another approach is to ask, "Is there a better way?"

Here is a list of healthcare expenditures in various countries, as % of GDP. Unless otherwise mentioned, the year is 2002.

_9.1_Australia. 2001.
_7.7_Austria.
_9.1_Belgium.
_9.6_Canada.
_7.4_Czech Republic.
_8.8_Denmark.
_7.3_Finland.
_9.7_France.
10.9_Germany.
_9.5_Greece.
_7.8_Hungary.
_9.9_Iceland.
_7.3_Ireland.
_8.5_Italy.
_7.8_Japan. 2001.
_5.9_Korea. 2001.
_6.2_Luxembourg.
_6.1_Mexico.
_9.1_Netherlands.
_8.5_New Zealand.
_8.7_Norway.
_6.1_Poland.
_9.3_Portugal.
_5.7-Slovak Republic.
_7.6_Spain.
_9.2_Sweden.
11.2_Switzerland.
_6.6_Turkey. 2000.
_7.7_United Kingdom.
14.6_United States.

Of all these nations, possibly Mexico and Turkey have health outcomes as bad or worse than the USA. The rest are better or much better.

I plan to do a study over the next few days which examines healthcare expenditures per capita in these nations. Because most of these countries do not have the per capita GDP that the USA has, US per capita health spending is even further ahead of most of the rest of a world. A few countries such as Switzerland and the Scandinavian countries for example are in the same GDP league. But notice that only Switzerland , Germany, Iceland and France are within 2/3 of the US in % of GDP spent on healthcare.

If anyone can think of a more wasteful, hurt inducing set-up than ours I would like to hear about it.

H.

 

[sgeeeee]

Another approach is to ask, "Is there a better way?". . .

. . .If anyone can think of a more wasteful, hurt inducing set-up than ours I would like to hear about it.

H.

I agree completely. But I don't get a sense that many Americans realize this yet. In fact, it seems to me that most Americans are still convinced we have a "better" system.

 

[BigMoneyJim]

Here is a list of healthcare expenditures in various countries, as % of GDP. Unless otherwise mentioned, the year is 2002.

Does that include the money they get from taxes in countries with socialized medicine? I would've expected some of the socialized medicine countries to be higher.

 

[haha]

Does that include the money they get from taxes in countries with socialized medicine? I would've expected some of the socialized medicine countries to be higher.

Yes, this covers all healthcare expenditures, public and private. Micro-economics suggests that when there is large buyer in the market, it gets better prices. Thus overall, countries with a large public presence in the healthcare market should get more for their money. An example is the great American drug rip-off. Most advanced countries bargain hard to get low pharmaceutical prices. Our wonderful leaders put their efforts toward preventing us from drug shopping in Canada.

To borrow from the AI thread, the American people are the hind end of the cow, the pharma companies are the bull, and our elected officials are the fellows holding us in place for the screwing.

H

 

[Mr._johngalt]

Yes, this covers all healthcare expenditures, public and private. Micro-economics suggests that when there is large buyer in the market, it gets better prices. Thus overall, countries with a large public presence in the healthcare market should get more for their money. An example is the great American drug rip-off. Most advanced countries bargain hard to get low pharmaceutical prices. Our wonderful leaders put their efforts toward preventing us from drug shopping in Canada.

To borrow from the AI thread, the American people are the hind end of the cow, the pharma companies are the bull, and our elected officials are the fellows holding us in place for the screwing.

H

You want some cheese with that whine?

JG

 

[Spanky]

An example is the great American drug rip-off. Most advanced countries bargain hard to get low pharmaceutical prices. Our wonderful leaders put their efforts toward preventing us from drug shopping in Canada.

Not only pharmaceutical products, but also medical devices. The average in Europe Japan selling price is 40 to 50% lower than that in the U.S.

 

[Michael]

That's the way our system works.  Politicians who don't take campaign contributions from special interest groups rarely beat politicians who do take the money.  The result is that most of our politicians are firm believers in giving expensive monopolies to  special interest groups.  They simply don't see increasing the price of medicine to be a problem.  They rationalize to themselves that they are somehow helping people by increasing the cost.

They mostly ignore the people who get suffer or die because they cannot afford to pay.  The most politically powerful groups are bought off with government meds to obtain their support, and the rest suffer.  There are limits how high things can go, but I expect many more years of rising costs.

 

[Spanky]

Politicians who don't take campaign contributions from special interest groups rarely beat politicians who do take the money.

Does that mean large medical device manufacturers and medical insurance companies contribute heavily to political offices? I do know that they spend lots of effort in lobbying at DC.

 

[Martha]

I am with you Mikey that this rate of inflation (I have heard both a 14% and a 11% figure) can't continue. The questions are where is the breaking point, what will result, and who gets hurt. The president doesn't seem to have any plans beyond encouraging the market to address the issue. One problem with that approach is that the market wants to insure only where it will make money, healthy people, and skip the unhealthy. Their concept of insurance is to insure for future risks---future health problems. Not insure for what already has occured--from chronic health conditions to genetic predispositions. So you need to have government intervention in one way or another.

Minnesota historically has been the most generous of any state in health care offerings. I mentioned before it has the cheapest risk pool with the greatest participation. The pool is subsidized by the state. Rates are about 125% of market rates. Of course the pool loses money.

For those who can't afford the risk pool or private insurance, and are not eligible for medicaid, Minnesota has a plan called Minnesota Care. A small premium based on income is charged. The plan is funded through a provider tax. There is enough from the tax to fully fund the plan. However, the state government is taking the money from the provider tax and putting it in the general fund to cover other state budget items. Now our brilliant governor, so intent on not raising income taxes, has limited the maximum benefits under Minnesota Care to $5000 a year. These are mostly poor people with medical problems. $5000 doesn't go very far. I currently am working on participating in lobbying our state legislature to remove this cap. I am not optimistic. If the cap isn't increased in this legislative session, I am going to substantially increase my particpation in lobbying efforts.

 

[Martha]

You want some cheese with that whine?

JG

BS John. These are problems that need analysis and solutions. I tire of neocons and others always accusing the opposition of whining. Baiting the opposition advances nothing.

 

[retire@40]

By 2020 healthcare will have passed the total of all other economic activity. Can't happen folks. It isn't that I think it won't happen; it simply cannot happen because there would not be the income to support it. My guess is that we are getting very near the limit right now.

Basing this on my own personal statistics you make a valid point.  There will not be enough income to support the cost at which point there will be a collapse.  I don't know if it will be a slow, painful collapse, or if it will happen quickly causing a laser-type focus on the problem.  My gut feeling is that it will be a slow realization that we are getting cooked.  I also think we are at the bleeding edge of this problem right now.  Either it somehow fixes itself, or there have to be major policy changes to make the fix.

 

[Mr._johngalt]

BS John.  These are  problems that need analysis and solutions.  I tire of neocons and others always accusing the opposition of whining.  Baiting the opposition advances nothing. 

I repeat. I am not (NOT) a neocon. But I am a confirmed cynic.
I see the problems, just don't expect anyone to fix them.
I have seen the people who are "working" on the big issues.
It's a judgement call

JG

 

[Mr._johngalt]

  The president doesn't seem to have any plans beyond encouraging the market to address the issue. 

Here is the deal. Provide a "safety net" for the truly sick/poor/helpless/retarded/crippled/etc (did you ever see anyone so non-PC?)
Then, step out of the way. The "market" will solve all other problems eventually. If there is a need, someone will find a way to fill it, as long as there is money to be made and the government doesn't step in.
Free market capitalism is the "unknown ideal", very soon to be as dead as
the do-do................ IMHO.

JG

 

[JohnP]

Great post HaHa!

We now have a "Tiffany" Health Care System in the US. It covers less and less of the US citizens and provides mediocre (but expensive) services to those who continue to participate.  

I agree with retire@40 that there will soon '...not be enough income to support the cost...' but think, additionally, that there is an exceptional team that will attempt to sustain the status quo by raiding other available sources for funds.

We need to follow the money, per Deep Throat.  There are deeply entrenched forces that benefit from the system - and any attempts to rein this system in will be met with forceful resistance.  Therefore, I believe that HaHa's very thoughtful "Natural Limits..." arguments will take longer than would normally be economically expected - but when reached will have significant consequences.  

JohnP

 

[HFWR]

Where's the Sam Walton of the healthcare industry...

 

[Martha]

I repeat. I am not (NOT) a neocon. But I am a confirmed cynic.
I see the problems, just don't expect anyone to fix them.
I have seen the people who are "working" on the big issues.
It's a judgement call

JG

I know John, you are the "and others"

 

[Mr._johngalt]

Where's the Sam Walton of the healthcare industry... 

If the government could be pulled back, he would appear. I am quite serious. It could be done.

JG

 

[cute fuzzy bunny]

I agree completely. But I don't get a sense that many Americans realize this yet. In fact, it seems to me that most Americans are still convinced we have a "better" system.

No first hand experience with anything else.

If someone comes into the world and has someone come up and whack them in the left knee every day, they wont like it much but its what they've come to expect...

 

[BristolBane]

What problem?

I'm paying $130 for medical insurance this year. It's one of the benefits of having a good job in this country.

 

[Mr._johngalt]

I know John, you are the "and others"   

Is this a subtle "Pogoism" ?

JG

 

[Martha]

Here is the deal. Provide a "safety net" for the truly sick/poor/helpless/retarded/crippled/etc (did you ever see anyone so non-PC?)
Then, step out of the way. The "market" will solve all other problems eventually. If there is a need, someone will find a way to fill it, as long as there is money to be made and the government doesn't step in.
Free market capitalism is the "unknown ideal", very soon to be as dead as
the do-do................ IMHO.

JG

This is the route Minnesota has taken through its risk pool and Minnesota Care plan; was working pretty good until our current conservative governor starting tampering with it.

Part of the problem is that the market might decide you are sick, helpless, crippled etc and not insure you simply because you used to get sinus infections or you take a pill.

 

[Mr._johngalt]

Off topic, , but I saw a little segue into "campaign contributions".
After I ERed, I dropped a bunch of organizations where I was just
mailing in my dues and getting little back (an economy). One exception
is the NRA. They spend piles of money on lobbying and progun
advertising. Wooing politicians is practically JOB ONE with them.
I will support them 'til I die and maybe even leave some of what I have
left to them. They are always asking for more money, but they get results. Even their opponents admire their track record.

JG

 

[Mr._johngalt]

What problem?   

I'm paying $130 for medical insurance this year.  It's one of the benefits of having a good job in this country. 

Yeah but those of us already "out" would rather struggle and bitch than go back to work, even for good insurance. I need insurance badly, but I know
I would never do it. If I must, I would "go bare" like uncle Mick and hope I made it to
Medicare.

JG

 

[greg]

If the government could be pulled back, he would appear. I am quite serious. It could be done.

JG

So, which part of 'free enterprise' encourages honesty?

Hi DW I have a very, very, very busy day today . . . have fun.