The Revenge of the Healthcare Economy

Two things:
1) If consumer spending continues to collapse (see retail numbers) - say, 25% or more - companies lay people off, people lose jobs, people with no money and no company-sponsored health insurance don't go for medical care.

2) Maybe this helps for now. What happens when the Baby Boom tapers off and the dramatically smaller Gen X becomes the largest user of health care? (As a side note: I also wonder what happens to all these communities based on a huge contingent of wealthy Baby Boomer retirees.)

I don't understand how health-care hiring can slow the recession. If your wife starts to charge you for housekeeping, will it increase your income? Will it help you in struggling with growing prices and the shrinking account?
We need to import oil, food, electronics, clothes, etc. We cannot produce enough for exchange and we lose our credit. How in such situation growing expenses for domestic services can save the economy? The expenses in health-care and other services make our export non competitive because from each gained dollar ninety cents go to people working in such pure domestic areas (health-care, construction, government, etc). Domestic services are well protected from the world competition and get disproportional income. This imbalance kills our industry. This is the major problem that we meet now and we will not solve it soon.

"2) Maybe this helps for now. What happens when the Baby Boom tapers off and the dramatically smaller Gen X becomes the largest user of health care?"

The median boomer won't be 80 until 2035, and the last boomer won't hit 80 until 2044.

30 years is a very long time, and even this assumes that gains in life expectancy stop.

This is a terrible way to prop up an economy. It does nothing to increase productivity, so no real wealth is being created.

Furthermore, Medical Tourism is about to drain $100 Billion out of the US healthcare system, which I am eagerly cheering on. It will force real innovation. Some charts here.

http://www.singularity2050.com/2008/08/more-on-the-economics-of-medical-tourism.html

Oh yes, Kartik, what could be better than YET MORE OUTSOURCING???!?! With the advent of the medical tourism you are so blissfully cheering on there will be no growth in this area and even fewer ways for the average American with smarts and a strong work ethic to make it in this country.

Perhaps the innovation you seek is everyone working at Subway?

We medical professionals work very hard and have made many sacrifices (not to mention taken on a ton of debt load) to get where we are. Why can we not make a decent living?

Not everyone will accept this insane "race to the bottom." What am I to tell my kids of their prospects?

Think about the real world realities for the people who make their livings in such professions.

"John Maynard Keynes would nod approvingly if he were alive."

One thing Mr. Keynes ignores is the drain on the economy that government spending puts. I agree with Kartik, only spending that increases productivity or at least production will grow the economy. Notice how health care is dragging down the standard of living for those with the same income?

I hope the government flounders for another couple decades trying to figure out what to do. 47 million uninsured is enough people to start price competition in health care. If we had 100 million uninsured, hospitals would have to pay a lot more attention to price and would greatly reduce the number of workers needed to provide the same service.

All this said, as a society become more productive, we can afford to spend more on services that consume wealth. When people own manufacturers in their 401ks, they own robots that replaced millions of people on production lines. While the robots are busy churning out products, their owners (mostly retirees) can spend the profit from those robots on health care. As more and more of our society becomes automated, inherited wealth will become more and more important. In the near future, I see greater portions of our population living larger portions of their lives in retirement. Some will live their whole lives in retirement. Health care is slowing this trend but it won't stop it.

Dixon,
Trying to argue logical things with Kartik is pointless. He puts blind faith in Invisible things - like Invisible Hands. And just like the Creationists, he'll find whatever evidence he can to support his belief of Invisible things.

Dixon, you are so correct. I bust my you know what 7 days a week working in the healthcare field, as the owner of cost containment company.

the race to the bottom is increadible for Americans to even think about. Yet, it seems that way.

All of the do gooders out there better think about what happens if everyone in healthcare suddenly works for governement healthcare or loses their jobs. The result can not be sustained. Look at what the auto industry could do if it were to be lost. Then take a look at what would happen if we had for example a single payor system. The job loss would be overwhelming.

I have worked hard for where I am. I put myself through college and a Masters degree, I am tired of the entitlement mentality.

Brian and Dixon,

You guys are worth every penny you get paid. The problem with the cost of health care, just like the problem of the Detroit auto makers, is not a problem of wages. We have a problem of efficiency. Very little of what we pay for medical expenses actually makes it to you.

I don't have the stats on this but lets look at the example in Micheal More's film Sicko. There was a guy who was told it would cost him $60,000 to have a finger sewed on. Lets put in some overgenerous numbers to examine how bad this really is.

Lets say there is a surgeon and an anesthesiologist who each earn $250k, 2 master degree level health care professionals earning $80k and 3 people who earn $40k on the team to sew on the finger. Lets say the surgery lasts 5 hours. We always hear how long the hours are for you guys so lets divide it out. 60 hours a week for 50 weeks equals 3000 hours.

($250k/3000 hours per year)*2*5= $833
($80k/2500 hours per year) *2*5 = $160
($40K/2100 hours per year) *3*5 = $286
$833+160+286= $1279 Total labor cost.

$60,000-1279=$58,721

What on earth is the hospital doing with the other $58,721!?! Efficiency! That is what I'm talking about. If I was off on my estimated labor cost by a factor of 10, we could still be wondering what the hospital is squandering the money on.

Competition can provide tons of efficiency in medicine. It doesn't have to come out of your pocket. On the contrary, we could afford to pay you more.

Even if the health care industry is doing well, I wouldn't jump in and buy stock in this sector.

Just look at these charts of XLV.
http://www.greenfaucet.com/technical-analysis/weekly-sector-wrap-up-sept-29-oct-3/97732

Kartik, I agree investing heavily in healthcare is probably not a great way to prop up the economy. We have better options. But I do think healthier people are more productive than dead or unhealthy people, so I'd back off on claims that healthcare spending (done right) doesn't increase productivity.

Brandon

I have to agree with Kartik in principle on this.
Why a surgeon in Inda with comparable abilities has to make 1/5 of its U.S. counterpart??
Same for a computer programmer, an accountant, etc..
We are all human beings after all.
I agree that our friend has a, let's say, somewhat simplified vision of the real world and you need to smooth the changes to avoid disruption and dislocation.
However he has a point when he says that, in the long run, living in a global economy, a certain type of work should be overall rewarded in the same way, in Boston as in Shangai.
Arbitrage should not occur....
Currency manipulation by governments to retain specific advantages has a big part in it...for example, if the Chinese yuan was let to appreciate "naturally" with the flow of trade, several Chinese products would not longer be competitive on price.
You can say that the reason why that particular surgeon has to earn that much in America is because the enormous cost of education here...well that is my point...if I get the "same value" for a hip replacement in India at 1/5 of the cost, it means that the Indian education system for that Indian surgeaon delivered more bang for the buck for that particular skill.

If the healthcare market is left to itself, doubtful, we'll see a wealth of options levied in by small business like http://www.spinsurance.com/ and pertquest. Places like Blue Cross and Aetna have huge inventory and adverting expenses.

Joe Cushing:

The medical payment system in the US is ridiculous. The numbers you see on a bill have no impact on what an insurance companies or even people with insurance companies pay. All reimbursement is based on DRG codes and negotiated base. If the negotiated base is 5k you multiply the DRG code multiplier by that 5k to get the cost you pay. If the DRG says .1 but the provider decides to do 20 extra tests on you, the cost is still $500. All those numbers on your bill are just made up to charge people without insurance.

There is already a tremendous amount of competition in health care for just that reason. The less a provider can treat DRG for, the more money they get to keep. Healthcare is very competitive. The problem is providers spend like 30% of their budget fighting insurance companies for payment. Insurance companies spend a similar amount fighting payment. They each see more return on these investments than they do in providing better care. And this is within the already competitive marketplace.