It’s the People

Why does US healthcare cost so much?

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.

Source: OECD

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

By |2018-01-05T07:24:03-04:00January 5th, 2018|Global Market Update|1 Comment

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

One Comment

  1. Bill Bulkeley January 5, 2018 at 8:53 am - Reply

    The growth in the number of health care professionals is important. But an even bigger factor is the way these people are paid. American nurses, hospital administrators, insurance execs, pharma workers and especially doctors make far more than their counterparts in the rest of the world. Check out this web site for doctors on employment opportunities around the world. GP’s in the US seem to make about 50% more than they do anywhere else in the world. There are a few specialists in Australia that make more than US specialists, but the main reason US health care costs are so high is that health care professionals make a lot more money here than anywhere else. That may be a good thing, but there’s no analytical evidence that the higher pay is making Americans healthier.

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