Like all sentient people in the US, I have noted the staggering increase in healthcare costs.
Compared to 1970, when national expenditures on healthcare (in 2023 constant dollars) were $450 billion, the US spent $4.87 trillion in 2023. This represents about 17.6 percent of the Gross Domestic Product (GDP), and is projected to be 20 percent in 2033. The per capita cost of healthcare in 2023 was $14,570, while most western European nations spend less than half of what the US spends (with universal coverage and better medical outcomes) .
Who Pays?
Private insurance accounts for 30 percent of the revenue for healthcare, while Medicare and Medicaid are at 21 percent and 18%, respectively. Out-of-pocket expenses constitute 10 percent of the total amount. State and local government, and private revenues, provide the balance of the bill. Or course, the real payers are the American people.
And there is the “time lost” cost. This refers to the time patients put in trying to penetrate what health insurance plans best fit their needs. It refers to time spent on holds, time spent jousting with insurance plans about coverage, and many more periods of waiting. This “in-kind” contribution that Americans make to the health system is incalculable.
Where Does It Go?
Hospitals get 31 percent of the revenue, while the physician component is about 20 percent (this includes services provided in offices, clinics, etc.). About 9 percent goes to the pharmaceutical industry for prescription drugs. Other cost centers such as nursing homes, home healthcare, dental care, physical and occupational therapy, etc. account for no more than 5 percent each.
If you are looking for a demographic that fuels the constant increase in cost, look no further than the aging population. The oldest 10 percent of the population are responsible for 52 percent of medical spending in any given year.
Obamacare and Skyrocketing Expenses
Two things about the healthcare expenses over time catch my attention. One is the steadiness of the increase since 1970.
With the understandable exception of the Covid years, the national health care bill has increased about five percent yearly. (from 2020 to 2022, the increase approached 10 percent).
Obamacare was passed in 2010 and fully implemented in 2014. In 2010, 48.6 million Americans had no health insurance. This dropped to 36 million in 2014 and in 2024 the number of Americans not covered by health insurance was 27.1 million. The percentage of the US population that was medically uninsured was 16 percent in 2010; today, it is 7.7 percent. The total percentage of covered Americans is now 92.4 percent (In western Europe, it is 99.8 percent).
Obamacare is often blamed for the high cost of healthcare. However, the incremental increase in healthcare costs over time is roughly 5 percent every year (again, except for the Covid years), with no discernable impact of Obamacare. In other words, the inexorable increase in national healthcare expenditure was not different with the institution of healthcare insurance under Obamacare. So, even though about 20 million more Americans now have health insurance than before, there is no bigger change in the yearly increase in cost than would have been predicted without the implementation of Obamacare.
This is hard to understand, but could it be true? There are factors that could make savings believable. Preventive care, previously inaccessible to the uninsured, may result in averting large ticket items that come with the lack of prevention. Importantly, Emergency Room visits could be down as newly insured people can go to their doctors rather than make ultra-expensive visits to the Emergency Room. Even if there is a bump in costs, the case could be made that insuring tens of millions more people is well worth it.
Medicare is often cited as one of the great successes of government programs. If my analysis is correct, Obamacare is right there. My calculations are admittedly back-of-the-envelope, so I genuinely would like to read a challenge to my reasoning.