Photo: Norbert Kaiser. Source: Wikimedia
People complain about healthcare costs all the time. And it’s shocking when you look at what a routine medical procedure costs, whether your Medicare pays, or your insurance company pays, or you’re on your own. And compared with other countries, the US is in a league of its own. We devote about 17% of our total economy on health care, while other wealthy countries spend around 12%. Why do we spend so much? Is it our drug costs? Our advanced medical devices? Fraud and abuse? Other countries have fancy machines and fraud, too.
Perhaps the most significant factor in our health care equation is employment. Through the last several recessions, health care employment has grown steadily. In fact, health care employment as a percentage of the total workforce is at a record level: almost 11%. And it’s increased during each recession: the number health care workers goes up, while total employment stays the same or falls. It’s easy to see why working in health care is attractive, especially when the rest of the economy is volatile.
Health care employment divided by total employment. Source: BLS, FRED
When we look at health care costs, it’s striking how similar they appear to health care employment.
Costs increased as a share of the economy at the same time that health care employment increased as a share of total workers. And this shouldn’t be a surprise. Payroll expenditures constitute the biggest portion of our health care system. As technology and trade have disrupted many sectors, demographics – our aging population – supports more jobs in hospitals, nursing homes, and with various medical practices.
And the world’s population isn’t getting any younger or demanding fewer medical services. Spending on healthcare will increase, and most of that money will go to the people working there. When today’s payroll report is released, it’s a pretty good bet that healthcare payrolls will just keep growing.
Douglas R. Tengdin, CFA