01 March 2010

The Secret About Health Care Costs

Rumors are, health care is about 16% of our total GDP. One of the few things that politicians and their constituents seem to agree on is that costs are too high.

So, let's say that the folks in DC reduce health care costs by half - making health care more affordable.

Little problem. Our GDP would suddenly drop by 8%, leaving about 12 million people suddenly unemployed.

People holler about debt and forget that for every dollar of debt there is a dollar of assets.

People holler about costs and forget that for every dollar of costs there is a dollar of revenue.

There will be no sweeping change in health care. It threatens too many jobs and businesses. What we can hope for is coverage for everyone and then incremental cost containment.

The most important thing we could do to contain health care costs, though, has nothing to do with health care. We need to grow new sectors, new industries, that make health care a relatively smaller and smaller portion of our economy. The way to make health care more affordable is to generate more revenue from outside of the health care industry, revenue that can be used to pay for health care.

We aren't just dealing with a health care system. The health care system is, itself, a part of a larger system. Lose track of that and "solving" the health care problem seems nearly impossible.


Lifehiker said...

Warren Buffet said today something like "health care costs are a cancer on our economy", and he recommends cost control measures. I agree...we are just putting too many dollars into this sector of our economy. Got to move more of that into Ron's entrepreneurial economy!

Big Al said...

Ron, your statement that includes "for every dollar of debt there is a dollar of assets" isn't necessarily true. Assets = Liabilities + Owners Equity. And you can have the right side of the equation be greater than the left, but not for long if you want to stay in business. And every dollar of cost does not directly = a dollar of revenue. Many companies operate in the red. But again, not for long, unless Uncle Sam is bailing them out. But I get your point: we first must provide coverage to all and then reduce costs. How do we do it?

For starters, we need to move from a reactive system to a preventative system. Let me explain...I'm 50 years old & have visited my Doctor 4x in the last 4 years: 1x/year physical exam. Every time my Dr. has said, "If all my patients were as health as you I'd be out of business." And he may be right. With the exception of a nasty elbow infection 2 years ago requiring antibiotics, I have taken no other prescription meds in the last 4 years. Val, a certified nutritional therapist, has gone 5 years w/o prescrips. We practice preventative health care: exercise, regulate our food diet, and take nutritional supplements suggested by Val. Our supplement costs and food costs have risen, but those costs are still below insurance costs + we are in much better health.

Costs can be reduced, but we need a major overhaul.

Ron Davison said...

LH - I still think that the health care industry offers lots of entrepreneurial opportunities. If you had more money to use to buy stuff or feel better, it makes sense to me that you'd do the latter.

Allen - this is one of the huge mistakes of health care policy, it seems: we pay for intervention but not prevention. We have got to fix that.
And thank you for the reminder about equity. I do get that. My point was that any penny borrowed is a penny owed and those two - the asset and liability - will always match. We'll never owe more than is owed. It is a tautology but my point is that we can't just say, "debt is bad" and also say "owning bonds (or holding a note)" is good. The two go together ... oh, you get the point. But thanks for the reminder anyway. Seriously.

Big Al said...

Ron, I'm hoping you agree that if we pay for prevention, we "should" be able to see an overall reduction in total cost since intervention costs are usually much greater than prevention costs, as in that old saying "an ounce of prevention is worth a pound of cure". And considering the continued expansion of girth I see in many of my fellow Americans, I'm thinking the saying should be updated to "an ounce of prevention is worth 10 pounds of cure", or "an ounce of prevention will help keep you off that show 'Biggest Loser'". ;-)

Norman said...

And can we get to where you gentlemen suggest we ought to go without making a shift to pay health care providers for "outcomes" rather than ala carte procedures and tests?

Big Al said...

Norman, one of the biggest cost escalators in health care is the prevention of lawsuits. Most Physicians will recommend any and all "potentially" applicable tests to ward off the potential of a future day in court where a plaintiff's lawyer making the accusation the doctor misdiagnosed a serious/fatal condition because a certain test wasn't run.

When people start taking responsibility for their own health...focus on leading a healthy lifestyle...focus on what to do to NOT get sick, then and only then can we start to dramatically reduce health care costs. A very good analogy is car maintenance: if you take proper care of your vehicle by changing the oil regularly, changing air filters regularly, flushing the radiator and transmission fluids when suggested, etc., etc., etc. the car will perform and run much longer than if you neglect your vehicle only to get hit with a hefty repair bill. That's what most of us are doing w/our body's today. We're neglecting maintenance, causing a major cost in "repairs" to our body's.

Anonymous said...

I'm not sure about the "for every dollar of debt there is a dollar of assets" part.

If I go deeply into debt for quintuple bypass surgery (for example) then I get to live a few years longer, but I don't see a tangible asset there.

All of my stuff would now be somebody else's stuff, that's all.

Norman said...

Greetings All,

I stumbled on this article earlier today, and think it provides an interesting perspective on why ultimately change will require innovations in the business models of health care companies:


@Big Al: I completely agree that getting people to make healthy lifestyle choices (and to change their oil regularly) is a prudent direction to take. In fact, I think that at some point, as members of society, we will be faced with the difficult question of whether to spend tax payer money to "bail out" those individuals who find themselves requiring expensive medical procedures because of their poor life choices.

As for the cost of "defensive medicine," the data I've seen strongly suggests that the economic benefit of those additional tests is a much bigger driver than fear of lawsuits.

Speaking to the larger issue of tort reform, I'll suggest that if we stopped excusing the "professional" members of society from serving jury duty, we'd likely see much more intelligent judgments. (I'll define "professional" as those people who don't consider $14.35 per day [or whatever your locality compensates for serving on jury duty] to be good money :)

Big Al said...


Writing specifically about your tort reform comment,I work for a company whose employees make up a significant portion of the local population. For several years many of my fellow employees would request jury duty exemption, claiming if they were selected to serve on a jury it would be a significant "hit" to the company. The local judicial personnel contacted our company's senior management requesting support for employees to serve and not continue to seek exemption. Our management, wisely, agreed and set policy whereby employees needed to honor their civic commitment if summoned.

David said...

I agree with almost everything Ron has suggested and a real health care bill would have focused on these suggestions and created incentives that were properly aligned. The one thing government can't do though is contain costs and make anything more affordable. The biggest lie is that anything the government does will save money. The other thing government can't do is change the system, however, the people can.