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U.S. Economy Doomed by Healthcare

As it stands now, U.S. healthcare will bankrupt the nation and doom it to permanent stagnation and recession.

That healthcare alone is dooming the U.S. economy is not news to Of Two Minds readers, as I have been covering the catastrophic consequences of our runaway healthcare system for the past decade.
 
Three charts crystallize the healthcare dynamics that are dooming the U.S. economy. The first depicts the runaway growth of healthcare costs–a rapid expansion that is a permanent feature of U.S. healthcare, regardless of which party is in office or what reforms are instituted.
 
This expansion of costs has many drivers, most of which result from the system’s perverse incentives for fraud, overbilling, marginal treatments and defensive medicine.Technological and medical advances offer more options for treatment, and can push costs up–but advances can just as readily push costs down, too.
The primary drivers of rapidly increasing costs are:

1. The cartel/crony-capitalist structure of U.S. healthcare
2. Defensive medicine to stave off litigation
3. Profiteering from needless or ineffective tests, procedures and medications
4. Fraud and overbilling
5. The concentration of expenditures in a small sector of the population
6. America’s inability and/or unwillingness to have an adult discussion over end-of-life care for the elderly.
Here is a chart of the rising cost of U.S. healthcare, which is far outstripping the growth of GDP, which is another way of saying healthcare costs are outstripping our ability to pay for healthcare.

Other advanced nations pay for universal healthcare with 8%-9% of their GDP, where the U.S. spends 18% of GDP on less-than-universal healthcare. How do other advanced countries provide healthcare for all for less than half of what America spends per person (per capita)?
 
Other advanced nations do not spend gargantuan sums on the elderly and end-of-life care. Please look carefully at this chart. No one with any knowledge of life in Sweden or Germany would declare their care of the elderly barbarous, yet somehow Sweden’s cost of care actually declines as the elderly approach the end of their lives, while the cost of care for the elderly skyrockets in the U.S.
 
Is medical care that different technologically in the U.S. and Sweden, or is it the difference between a system that is rational and one that is based on extracting the maximum profit from delivering whatever the government will pay for?
Now that the 60+ million Baby Boom generation is entering Medicare, the soaring cost of caring for the elderly American-style is about to explode higher. Anyone who holds the magical-thinking hope that America’s stagnant economy and job market can support healthcare costs that consume 25+% of GDP should study this article and the chart below: The Concentration of Health Care Spending (via B.C.)
It is clear that per-person spending among the highest users is substantial and represents a natural starting point when thinking about how to curb health care spending. For instance, the average expenditure for each of the approximately 3 million people comprising the top 1 percent of spenders was more than $90,000 in 2009 (Figure 2). The top 5 percent of spenders were responsible for $623 billion in expenditures or nearly $41,000 per patient. In contrast, mean annual spending for the bottom half of distribution was just $236 per person, totaling only $36 billion for the entire group of more than 150 million people.

 
The concentration of healthcare expenditures in a thin slice of the populace is astonishing: 20% of the costs are spent on 1% of the populace, typically elderly people with multiple chronic lifestyle-related diseases. 50% of the total costs are spent on the top 5% of high-use individuals.
 
One direct result of rising healthcare expenditures is recession, as this chart from frequent contributor B.C. illustrates. As healthcare expenditures rise, real sales stagnate and the economy cascades into recession.
The majority of U.S. healthcare spending is not productive; it is a drag on productivity. Subtract the fraud, overbilling, defensive medicine, marginal/ineffective overtreatments and tests and the extreme concentration of costs in 5% of the populace, and we’d have a system that we could afford, i.e. one that cost less than 10% of GDP, in line with our advanced-economy competitors.
 
As it stands now, U.S. healthcare will bankrupt the nation and doom it to permanent stagnation and recession. It’s our choice: live with a bankrupt system built almost entirely of perverse incentives, or begin an adult discussion about a system that delivers responsible care to the elderly in line with other advanced nations, but at a fraction of the current cost.
  • Charlie Silver

    Good column, but the cost of defensive medicine is greatly overblown. Most studies of tort reforms find that they save little money, if any, and there’s even evidence that some tort reforms increase spending by freeing doctors to deliver more needless services to patients. The primary cost drivers are third party payment, fraud, waste, political control of the payment system, and a host of games that businesses play to maximize the amount of money they receive.

    • DeeLio

      You should see what happened in Texas. There was a large ballyhoo here about ten years ago about Law Suit Abuse and Texas doctors. There was a sweeping reform. It’s very hard to sue a doctor in Texas now. Health care costs did not decrease and the provision of services didn’t increase. The only people who benefitted were some insurance companies (who didn’t lower rates to doctors.)

      There was a prime example of how far Tort Reform had removed a safeguard against medicine in Dallas a few years ago when a cocaine addicted spinal surgeon was maiming patients. Totally disgusting.

      • Charlie Silver

        I know quite well what happened in Texas. My research group is the one that studied the impact of tort reform on health care spending in Texas, and found that no dollars were saved. In response, (then) Gov. Perry wrote an op-ed admitting that we were right, but saying that the point was to bring docs into the state, not to save money. Our next study showed that tort reform brought zero doctors into the state too. A complete flop.

  • shinyhalo

    There are lots of ways fitness-oriented preventive care could help, but politicians are literally being bribed to let the system continue this way.

    • Sean

      No one wants to be told that eating right and exercising will fix some of their health problems. They want pills to do it for them.

  • Sean

    So, is there any way that the US could fix these problems by joining the rest of the first world and provide single-payer healthcare? Or will the problems listed in the article exist even if we move to socialized healthcare? Would they become worse?

    I assumed the insurance companies taking their cut were causing a great deal of our bloated spending on healthcare. (Do you have numbers that reflect how much they do take?)

    • DeeLio

      There was also quite a bit of propaganda and fear mongering. “Death panels” and “Throw mama from the train” were bandied about daily when talking about the evils of single payor. No one mentioned that we have to pay for these health care services, especially at end of life scenarios.

  • Jonathan Livingston

    Oh wow! It’s really impressive.

    My girlfriend’s grandmother recently past away due to a stroke. The problem wasn’t the stroke at all but the insistence of one family member who kept pushing and threatening the hospital staff for continuos life support even though she had a huge stroke the size of a baseball on top of severe hypertension and old age. Everybody was ready to let her go except for one knucklehead who just didn’t understand. At the end, the old lady spent almost two months after the stroke and died from a pulmonary infection.

    When the bill came it was a huge sum even though she had an HMO so everybody chipped in to pay for it except for the same guy who instead of coming into terms with it he hired a lawyer and sued the hospital for almost everything they could think off from medical malpractice to faulty procedures and even improper medical care from the nurses.

    The lawsuit took about eight months to go to court and ultimately they lost, which wasn’t a surprise because there wasn’t any deviation from the standard of care provided by the hospital.

    In the end, in order to pay the hospital bill and legal fees my girlfriend’s family sold the old house where the grandmother lived and it barely covered the costs.

    Being sick in this country is very expensive and it baffles me how we did end up here. My mom is from England and for all the bad things they publish about the NHS, it’s still a lot better than our system. Here we pay a lot for medical insurance but over the pond it’s covered by the government and private sector but a small fee levied upon the patient.

    For me a broken forearm cost my family $1,200 back in 2002. My mom even suggested that the next time I have a broken forearm, we would purchase tickets to London and have me treated there, and it would still be cheaper than doing it here.

    • highwaterjane60

      I had 11 stitches in my hand at the doctor’s office and THAT cost me $1100. Our systems is so broken. We need to burn down the insurance companies and medical corporations and start over.

  • zlobek

    I have been living in US for two years now. Moved here from Europe.Over past 20 years I have lived in 4 different countries, UK, France, Italy and Poland. Nowhere in the World the healthcare is so bad as in US cost wise. Exaggerated prices,useless procedures, yearly costly imaginary checkups, silly vaccinations agenda, and completely useless doctors afraid of touching your sick places by fear of being sued for impropriety behavior. US is the only country in the world where after your doctor’s visit you still don’t know how much it will cost you due to insurance scums. This is completely idiotic.You visit a dentist who sees 5 different patients at the same time with you( having 20 nurses helping him I know this sounds funny but its true) and the only diagnosis they can offer you is that you need full corona which is the money maker for them. Nowhere in the World doctors diagnosis are based on what pharmaceutical companies lobby them. Visiting GP in US make you wonder whether you see independent doctor which tries to cure you or help pharmaceutical company get richer. Doctor’s profession is completely deluded here. I have paid compulsory private health insurance here( I have been forced with fear by people telling me horror stories what will happen if I am not insured) almost 24 thousand dollars and my family only visited doctors couple of times during this time. I call health insurance here legal thiefs.
    Health business will kill this otherwise beautiful country.

  • monteboss

    If we get rid of the jew we will have affortable healthcare.