How Much Do We Spend on Healthcare?

TL;DR: $3.2 trillion/year

The politics of healthcare are certainly complicated. The rhetoric is so confusing that it's very difficult to make any sense.

Maybe surprisingly, perhaps because of politics and confusing rhetoric, most Americans don't know know the basic facts.

We spend $3.2 trillion/year on healthcare (according to the Center for Medicare and Medicaid Services).

With headlines like:

• Senate Health Care Bill Includes Deep Cuts to Medicaid
• President Trump’s claim Medicaid spending in Senate health bill ‘actually goes up’
• U.S. Will Spend $2.6 Trillion Less on Health Care Than Previously Estimated

can we tell if we are spending more or less each year? This is often confusing because it's unclear if the numbers refer to annual spend, cumulative spend, increases in change or accelerating change. For example what does the phrase  "Slowing increase in spend over 10 years" mean? This is a really complicated sentence.  Further, we've confused "How much do we spend?" vs. "Where is the money coming from to pay for this?" And, insurance complicates this because buying insurance is very different than buying healthcare. But we sometimes interchange the two.

I've stated in the past, calculus/math can help explain it precisely but people don't understand the math terminology or it is used incorrectly. For example, saying "increasing rate of change" when meaning "increasing change" causes complete confusion. But nitpicking over incorrect use of math terms is an argument for another day.

Hopefully, some clear facts without bias will help.

Basic facts

We spend 3.2 trillion/year on healthcare. That's about $10,000/year for every person in the United States. To put that in perspective,

• Our  federal budget is about $3.8 trillion
• We spend about $600 billion/year on military (less than 20% of healthcare spend
• Apple had $216 billion in revenue in 2016. Microsoft $85 billion, Google $89 billion

One particular concern for many seems to be the amount of the ACA subsidies. This is about $40 billion (in 2016). This is about 1.25% of total healthcare spend and about 1.1% of the federal budget.

The Breakdown on Spend

We spend a lot on hospital care. And, it's not clear where high cost services are accounted -- I assume stuff like cancer treatment, organ transplants. And, is malpractice insurance/payouts baked in here somewhere? Another thing that isn't clear is how much is spent for processing payments and insurance claims. This might be quite high but I assume somehow baked into the costs given above.

How Is it Paid For?

The CMS report does not account for 19% of the source of money. Perhaps there is a shortfall of income relative to spend?So, maybe either consumers are delinquent/in default and/or providers are not getting paid? Or it's an ommission/error in the report.

As noted, it seems the ACA subsidies are about $40 billion/year (at least in 2016). This amounts to about 1.25% of spend/revenue source. There seems to be a lot of philosophical opinions around subsidies, especially with regard to healthcare, and even more specifically resulting from the ACA. Regardless of the philosophy and implications of subsidies, the amount is relatively small, at 1.25%.

Paying for It -- Another Slice

This slice shows that consumers "see" about $900 billion in out of pocket spend -- a combination of premiums, deductibles, and other stuff purchased that isn't covered by insurance. Insurance through companies clock it $640 billion, which, arguably, people see when they think about their overall benefits they receive from their employers.

On a Personal Level

 As consumers, one might ask what is the impact on me? These are really big numbers. One way is to think of this on an average basis. However, looking at the average is also fraught, as explained below.

On average, we spend about $10,000/year per person. So, a family of 4 would pay on average about $40,000. Currently, out of pocket expenses, excluding premiums, work out to about $1000/person-year. This seems relevant especially when one doesn't consider the insurance coverage (e.g. the subsidized premiums) that a person gets from their employer. 

On the other hand, actual expenses from year to year or person to person is wildly varying. If something "bad" happens to you or you have an expensive elective procedure (dare I include having a baby here), things are relatively expensive when compared against an uneventful year. Also, there is a huge variance of medical services used between young adults  (say 20-3o years old) and aging adults (say over 55 years old). So, average is maybe a bad comparison, because the variance is so high.

So What to Do?

I'm not going to make any recommendations here. I only wanted to provide factually information of our actual spend. (I'm sure many people are going to disagree with these facts regardless.) I will hold off until another blog post to make recommendations. But I leave you with this:

• We spend about $3.2 trillion on healthcare every year.
• We've have the revenue to pay for it. (Except for perhaps that 19%)
• This is about $10,000/person on average

When we explore a solution, I think we must ask:

• What are our obligations to provide health care as a society?
• Who will pay for it? What is a "fair" system?
• What system will decrease costs, make medical care more efficient, and promote better health moving forward?
• How much should we be paying for billing and insurance processing? Is this "friction"/inefficiency in the system that can be trimmed?

I hope these facts help.