Healthcare Spending is Rising Twice as Fast as You Think
Healthcare prices in the U. S. are growing twice as fast as you think. To understand this phenomenon, which should convince everyone that tackling healthcare prices must be the Trump Administration’s top domestic priority, consider the following:
The United spends double, on a per capita basis, what other similarly developed countries spend on healthcare, while getting lesser healthcare outcomes. We do not visit the doctor more often. We visit less—far less. In fact, in the United States on average, we visit the doctor 40% less often than the average across all OECD nations. That means we are spending twice as much money to see doctors 40% less often. Now, you might think that’s because we’re healthier, but we’re not. As it happens, the United States has seen improvements in life expectancy come to halt over the past two years. It’s the first time in 50 years that a drop in life expectancy has been recorded two years in a row. Growing healthcare prices also cannot be explained by more drugs or more surgical procedures. According to the Health Care Cost Institute, almost all of the growth in healthcare spending can be attributed to one thing—rising prices. And when prices are rising faster than the rate of inflation, the money is going somewhere—mostly to profits that are not rewards for providing more or better service. That, in turn, explains why the stock prices of health insurance carriers are up twice as much as the stock market (which is up over 100% itself since the implementation of the ACA).
So, back to the original point—why healthcare spending is rising twice as fast as you think. Consider that we spend, on average, about $10,000 on healthcare for every man, woman and child in the United States each year (it’s actually a little more, but $10,000 makes the math easy). Right now healthcare spending is rising at two to three times the rate of inflation. But for arguments sake, let’s just assume it’s double and call that 4% (inflation was 1.9% in Q1 2018). That means we should expect healthcare spending to rise $400 per American each year. However, that $400 is calculated by multiplying the inflation rate by the prior year’s spending ($10,000 in this example). If we were only spending $5,000 per capita, then the annual increase would by 4% x $5,000 = $200.
That’s why even restraining the growth of healthcare spending to the rate of inflation is allowing it to grow faster than it should—twice as fast, in fact ($400 per person as opposed to $200 per person).
Over the coming decades, we have to drive prices down, not just keep them flat, because growth at the inflation rate will ensure we perpetually have a healthcare system that consumes twice the economic resources that it otherwise should.
The oversized cost basis of our healthcare system is why I’m calling for a target growth rate of zero. Even at that rate, it will take decades for prices to come down to where they should be. For now, let’s call a zero growth rate about 2% slower than the inflation rate, and 4-6% slower than the healthcare inflation rate. If we can do that, we return approximately $200 billion per year to the U.S. economy for investment in other things such as infrastructure, education, and the growth of small businesses.
$200 billion in economic stimulus—every year—is bigger than any tax cut. That’s $2 trillion over the next decade. And when you consider that government pays half the healthcare bill in this country, a concerted effort to drive down healthcare prices effectively pays for the recently enacted tax cuts. There is no greater gift that Trump and Republicans can give to Americans than attacking healthcare spending. Democrats should join them.
But…it has to be done right. Squeezing prices by simply lowering Medicare reimbursement or reducing the money states have for Medicare is not the answer. The answer is ensuring that competitive market forces drive prices down by improving service while encouraging innovation and efficiency. That way we don’t short change the healthcare people are receiving. When we cut Medicare and Medicaid prices, two things tend to happen. First, seniors and those most in need of our help have a tougher time getting the access to the healthcare they need. Second, an ever-greater share of costs is passed on to the private sector. Cutting spending doesn’t really save money in the long term. Only by allowing competitive forces to drive down prices can we ensure it’s done efficiently and effectively.
So please, help support our effort to ensure real price transparency that empowers consumers and the market to do what needs to be done. Please consider making a donation to the Broken Healthcare Action Fund today. We need $20,000 by the end of the week to keep the signature collection going. We have until the first week of August to get all of the signatures necessary to make sure Coloradans have the right to vote on price transparency in November, setting an example for the rest of the nation. We’re in the homestretch, but we need your help.