Healthcare Spending and a Negative GDP: Engine of the Economy?

For the past nearly 20 years, I’ve been working in some way in health policy or managed care….writing training, papers, articles. That means for nearly two decades, I’ve been tracking the cost of healthcare and its effect on utilization. After all, if economics is interesting, where else does it play out in a more important or personal way than in the way it affects our individual wellbeing?

Over that same time, payers have continued to complain about the cost of care. Healthcare isn’t cheap.

Here’s what the complaining sounds like: When I started working in this field, payers were upset that healthcare was consuming 12.9 percent of GDP. Think about all the other ways we could be spending that money, complainers said. Meanwhile, I was sitting there thinking, Wow, healthcare is a huge engine of this economy!

After all, what better way to spend our national treasure than in taking care of our people? The problem is making sure we are truly spending it in ways that are most effective, reach the most people, and do it for the least possible cost per person so the goodies get spread around. In a nutshell, that is the cost, quality, access conundrum.

Who are the Payers?

Today, healthcare makes up more than 17% of GDP and projections have it headed toward 20% – a full one-fifth of the national economy – by 2020. The complaining, once mostly confined to academics and healthcare professionals, has become a national obsession. That’s because the pressure on payers has morphed into a problem of patient access.

We’re all payers, and we’re all patients. But the tide is turning regarding who pays what and who controls access.

Payers fall in several buckets: the government, private employers, patients and, by extension, the health plans paid to insure the cost of care against catastrophic loss for those same groups. Each payer has their own unique complaints about cost and, in all cases, the one outstanding common compliant is that the cost of care is a drag on their bottom line.

Bear with me while I explain what that looks like. I’m going somewhere with this:

Government: The feds pay the lion’s share of Medicare, VA, DOD, and Medicaid, not to mention federal, state and local employees, prisons and public clinics, etc. Medicaid is its own peculiar animal which shares costs with individual states that run their own programs, and the important fact here is that the cost of the Medicaid program is usually the highest or second highest state budget item vying with education. Unlike the feds, the states must balance their budgets. You can hear the screaming from state capitols every year.

Private Employers: Back when the economy was booming years ago in the Clinton era, most Americans got their healthcare paid by private  employers. Many still do, but it is shifting more toward the government. The cost of healthcare for workers and their families, and retirees, costs a bundle and contributes to the overall cost of goods and services of American-made products. One medical director from a Big Three automaker (remember those?) was known for his histrionics at meetings where he was once seen pulling his empty pockets from his trousers and yelling at his pharmaceutical company hosts who were introducing a new product to him, “See this? Lint. I got nothin’ left but lint!”

Patients: Healthcare is a necessary expense. If you break your arm, you probably aren’t going to set it yourself. Medical products and services go in the family budget,  and it’s a priority. It is up there with mortgage, food and car expenses, in that it is not optional. In most cases, private patients can expect to pay about 25% of the total cost of care.

Health Plans: Health plans are identified as the payer because the government, private employers and patients most times offload their responsibility for the total cost of care to an insurer and pay them to take on the risk that something catastrophic could happen that would break the bank. Over time, health plans have taken on the job of paying for simple, everyday things like a checkup with the pediatrician, so in turn, they are now in the position of managing all care – since they are paying for everything, not just the big items. Hence, managed care.

Engine of the Economy Breaking Down?

Which leads us to the fact that the White House Council on Economic Advisors this week partially attributed a 2.9% drop in GDP during the first quarter of this year to a decline in healthcare spending. But wait! I thought all these payers, all these years, have been screaming that healthcare costs are killing them and were trying to reduce spending.

Today, in 2014, people are struggling. They are buying fewer cheeseburgers and Chevys, and it appears they are also going to the doctor less frequently. After all, more disposable income is going to gas up the Chevy and pay for the beef.

So, were healthcare costs killing us or were rising medical costs indicative of a thriving economy where people could afford to go to the doctor and pay for medicine, physical therapy and dialysis?

Healthcare might be a drag on the bottom line, or, might we postulate, the sector may be providing jobs and encouraging spending on necessary (broken arms) and optional (checkups, flu shots, Botox injections) medical care that puts money into the economy.

Perhaps it wasn’t the cost of care that helped drive the economy into the ground, but the lack of good-paying jobs in other sectors that means patients, employers and the government can no longer afford to buy healthcare – or cheeseburgers or Chevys. Which might explain those recent hospital closures, layoffs and hiring freezes…

This might be a case of If it ain’t broke, wait around. We can break it.

Note to readers: I recognize this is a very complicated issue, and I am not a health economist. This diatribe does not begin to address a single-payer system, mandates, tax incentives or any other confounding issue. It is not intended to simplify this issue or to make light of very serious problems of cost and access, but rather to get a discussion going about the value of healthcare as a contributing sector of a vibrant economy. I welcome input. Thank you for reading.