Today at TILE… A Check-Up on Health Care

March 16th, 2010

Today at TILE we talked about the intense debate on health care going on in Washington, Wall Street, and homes and offices across the nation. Why is the cost of health care so important – and so controversial? What is driving the increasing costs of health care? Why might your point of view on the matter differ from your parents or your grandparents?

Health care is a big topic for two reasons: it personally impacts everyone (we all want to be healthy) and it impacts the economy (and our personal financial status). Today, health care spending represents about 16.2% of our Gross Domestic Product (GDP) which measures the output of goods and services in the economy. On a percentage basis, it may not sound too bad, but if you put it in the context of absolute numbers and growth trends it deserves a double (or triple) take. First, in 2008 the U.S. spent $2.3 trillion on health care – that’s $7,681 per person. Even though it wasn’t a direct bill to you or your parents, it means that a lot of energy, government spending and tax dollars across the economy are being directed to health care. Second, the increasing cost of health care is growing faster than our economy AND our population. For example, about ten years ago, the cost of health care was $1.2 trillion, or $4,295 per person. During this time GDP grew from $8.8 trillion to $14.4 trillion and the U.S. population grew from 277 to 305 million people. If we look at measures of how much different things have grown over that time, we see that in only 10 years, health care spending has grown at a rate of 7%, per capita (per person) spending at 6%, the population at 0.9%, and GDP at 5.1%. As you can see, growth in health care spending has outpaced everything else. Imagine what it will look like 10 years from now if nothing changes?

So why are health care costs growing so quickly? There are many factors. First, advances in technology and medicine mean that people are living longer. New techniques and treatments that increase lifespan are being discovered every day. Second, the cost of doing business and receiving medical services is getting more expensive. Sometimes there is less competition (hence the reason for increases in health insurance costs… at TILE our health insurance rates went up 30% this year!). Legal risk is increasing, too. Doctors, hospitals, pharmaceutical  companies and other providers are constantly being threatened with lawsuits – and as the cost of their insurance goes up, so does your cost. Government inefficiencies don’t help either, especially since nearly 50% of all health care expenditures are covered by the government.

The current debate on health care across the country highlights the fact that not everyone agrees on what should be done. Major reasons for disagreements include special interests and generational preferences (there are more factors, but these are two big ones to point out). Those that are benefiting from the growth in costs don’t want to see more efficiency in the system. For example, health insurance companies benefit from reduced competition and government inefficiencies. At the same time, older generations don’t want to see a reduction in their benefits. Many people (we will call them the “have’s,” since they are currently well-covered) are afraid that if more resources go to young people and those not currently receiving coverage (the “have not’s”) then there will be less available for them.

So what does this mean for the TILE community? Well, on a practical level, the current plan in Congress would let you stay on your parents’ plan until age 26 (versus 18 or after college). This gives you a lot more freedom in deciding what to do next – you don’t have to take a job just to get health care coverage. On an investing basis, you might want to consider speaking with your financial advisor and/or researching companies that could benefit from changes in health care trends. Is there a technology company that promises new efficiencies to the industry? A bio-tech company identifying cost effective ways to treat common ailments? What new medical treatments are you hearing about (or benefiting from)? From a policy basis, we at TILE would encourage you to pay attention. Current growth trends imply that health care, if not already something that impacts you, will become a bigger and bigger issue (and a bigger cost) for you in the future. It may be “out of sight, out of mind” today, but you can bet it won’t stay that way for long.

- Amy

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