Issue #408: The Economics of Healthcare
Good morning. It’s Tuesday, December 3rd.
It’s “Giving Tuesday.” Don’t underestimate the value of giving back this holiday season.
Last week I took my 7-year old daughter to volunteer - we spent 3 hours helping pass out fresh produce to those who could be helped by these donations. It was especially important here in Tampa with so many families affected by the two hurricanes this year.
It was such an awesome experience to do this with her and I know it’s helping her be grateful for what we have in our lives and how to help those going through tough situations.
In today’s email:
Learn: Economics of U.S. Healthcare
Focus: Preventive Medicine
Laugh: Achieving Ambo Status
In the News: Wooden Skyscrapers
I know it was probably a little hectic during the Thanksgiving holiday - if you missed our assessment of David Beckham’s new supplement brand, IM8, in last Friday’s Newsletter - check it out HERE.
Stat of the Day
The number of people 65+ that will be living in the U.S. in 2030 - 1 in 5 people (20.7%) will be in this age bracket. (S&P Global)
Learn
The Economics of U.S. Healthcare
There’s no way to really understand the size of the healthcare industry - what does $4.5 trillion actually mean?
It means that it’s 17.3% of the U.S. GDP (our total economy). And it’s actually bigger than the GDP of every other country in the world besides China.
That’s right - our healthcare system is bigger than the total economy of Germany, Japan, India - and everywhere else.
But the truly scary part - it’s going to get worse.
It’s common to see headlines about U.S. exceptionalism when it comes to healthcare - why do we spend so much more and don’t seem to get better results?
While there’s no way to list all the reasons a $4.5 trillion system is so expensive, here are some of why we spend more than any other country per person:
Access - Americans aren’t willing to wait for healthcare. The quality in countries like Canada and the U.K. is on par with the U.S., but wait times for non-emergency procedures (even important ones) are way longer than what we would accept here. It’s been that way since the Hill-Burton Act was passed in 1946 that created the financing to build hospitals wherever they were needed.
Choice - the reason PPO’s are so much more popular than HMO’s is that Americans want to choose their doctor and hospital. This means more supply and more complexity.
Innovation - 30-40% of pharmaceutical drugs are developed in the U.S., which costs a lot of money for R&D. But it’s not just that. When new procedures are less expensive, and more importantly, less invasive - like a hip replacement going from a 3-4 day stay in the hospital to a 3-hour operation in a single afternoon - more people elect to have these services and the total cost goes up.
Opaque Pricing - and of course there is the problem that all the big players - hospital systems, pharma companies, and health insurers are focused on maximizing profits. We don’t have transparency into pricing and the monopolist powers lead to inefficient pricing. We don’t really care if we’re not directly paying all the bills. But we are paying - there’s just too many middlemen taking money too.
In this system - we typically pay a premium payment every month for access to a network in case we have a catastrophic event (e.g., cancer diagnosis, heart attack). Note: We can’t get away from health insurance through employers because of the tax benefits.
But there’s another deduction in our paycheck - Medicare.
Today’s workers pay for coverage of people aged 65+. But there are only 2.7 workers for every Medicare recipient. And as all the Baby Boomers hit the age of 65 in 2030 - that number goes down to just 2.3 workers for everyone over 65.
Doing the math - Medicare pays, on average, $16,700 per year per person. So that means every single worker in the U.S. will have to contribute $7,260 per year to cover just one person on Medicare. 🤔
U.S. Underperformance
Now about those bad results. We live, on average, 3 years less than the rest of the developed world.
Is this all due to healthcare? The primary reasons for lower lifespan include:
High infant mortality - both a lack of healthcare access for lower income expectant mothers and high incidence of teen pregnancy
Higher drug and substance abuse
Higher rates of homicides
Higher rates of suicide
Higher obesity and chronic disease rates
The biggest way we can reduce our healthcare spend is not just about how we use the system - it’s about how we live our life.
And I get that there’s a moral hazard problem - the prisoner’s dilemma: why should we pay for other people’s decisions??
But in classic game theory - the individual incentive goes against the best outcome for the group:
If splitting the check, order the most expensive item on the menu to get yours
If being questioned for a crime, snitch on your partner to save yourself
But with healthcare, the incentives are different - the winner is the individual who doesn’t need to use the system. So by optimizing your health and longevity, the entire system spends less and everyone wins.
Focus
Preventive Health
Of all that $4.5T, do you know how much goes to preventive health?
Just 3.5%
But this is how we can change our longevity AND the economics of healthcare.
Take colon cancer - it’s still one of the most prevalent and potentially lethal cancers. For everyone that gets diagnosed, treatment averages $60,000+ and can easily eclipse $100,000.
Now let’s say you start getting colonoscopies every 3 years starting at age 45.
(Note: The US Preventive Taskforce recommends this screening, but hasn’t quite reached this frequency of procedure. ☝️ But remember - you care about your 25-30 year risk profile - not just the next 5-10 years, so the more you get ahead of this, the more years of healthy life in your future).
Ok, back to math. So if you had a colonoscopy every 3 years starting at 45, that would be 15 colonoscopies by the age of 87. Each procedure costs $1,444 - meaning in total you will cost the system only $22K over 42 years.
Plus, screening options are becoming more accurate so that you can look at low-cost, less invasive alternatives so that maybe you do only require the procedure every 5+ years.
The more we plan now for our own long-term future, the more we prevent chronic disease for ourselves and lower the cost for the entire system.
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Laugh
Achieving Ambo Status
H&L in the News
A Key to Dementia - the Brain Microbiome?: Hidden brain microbes may drive dementia - learn groundbreaking insights on prevention, treatment, and the surprising link between infections and cognitive health. (The Guardian)
How Flexible Are You?: Test your mobility with these seven simple moves. Learn how aging impacts your joints, why mobility matters, and exercises to keep your body moving pain-free for life. (NYTimes) For more ways to gauge your functional health, check out our fitness test playbook.
Wooden Skyscrapers: Mass timber construction offers a sustainable, visually pleasing alternative to steel and concrete, cutting emissions and building time while adding warmth and durability to modern cityscapes. (Knowable)
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