In 1960 medical costs in the United States were five percent of our Gross Domestic Product (GDP). It’s been an epic climb from that basement to the twenty percent expected by 2025. Medical technology costs, pharmaceutical expenses and everything in between takes a larger part of every budget dollar, and in spite of this expense trend it appears for the first generation in history that our children will not live longer than we are living.
The elements that define this increase have not resulted in better bedside care or in healthier Americans. We have more cancer per capita, more obesity, and type 1 and 2 diabetes across the board and, on the whole, we are not really too healthy these days. Medical expenses are partly correlated to the increase in fat and the affixed heart and circulatory ailments that move in lockstep with that, but we also are more addicted to drugs and take a cocktail of prescription medicines with side effects that are worse than the ailments we seem to be afraid of.
Medicine has become part of capitalism and, unfortunately for shareholders, investors and interested parties, it should not be. It is lovely that high tech devices can enhance medical care and interesting that capitalists argue for profits at the top of their lungs. It just violates the spirit of medicine and it runs into a reality driven by insurance marketplace ultimately defining how medicine must work.
Car insurance is an example of a fluid insurance and repair marketplace. An automobile has a value that is established and its repair prices are known. The math of this allows insurers to charge a rate that is validated in actuarial mathematics. If a car is damaged beyond repairable, it is “totaled” which establishes a maximum value which cannot be exceeded.
Also driving records are part of the overall structure and the rates which are levied on the marketplace. This large number of operators creates finite math which every insurance business must have to work in perpetuity. When we crank these facts into the medical cost marketplace we run into a buzz saw of madness that sits at a precipice of change.
The New York Times reported this morning “Amazon, Berkshire Hathaway and JPMorgan Chase announced on Tuesday that they would form an independent health care company to serve their employees in the United States.” The core premise it seems is “a long-term effort “free from profit-making incentives and constraints.”
What took them so long? We have observed a trend to optimize in every business process over the past thirty years. This cost is the runaway train that has escaped the noose in miraculous fashion. Inventories are near zero, workforces are variable and third party outsourcing and process optimization has wrung out the costs and honed every organization to a zero error environment. Medical expenses have trended up every year in an environment where most costs trend lower and its about time someone cast the first stone of change here.
The math of medicine is interesting. Doctors are, for the most part, not paid massive money and support staff like nurses and other medical experts are also paid moderate wages. A company spending money to have every employee examined and creating partnerships to reduce costs and incentivize behavior that reduces costs. It makes perfect sense for a large company (or in this case group of companies) to band together to attempt to lower costs with better outcomes.
It is high time to reclassify medical costs as “health expense” and to educate employees on what is healthy, create bonus pay for employees who do the things designed to create favorable health outcomes. Healthy employees are happy and productive employees and that’s not just less expensive but it makes a happy workforce.
It’s the last frontier of expense reduction to take on medical costs directly. Smart companies can hire quality medical staff, build a hospital and bring employees to centralized location for more intense medical treatments, negotiate drug costs to gain lower price points and enhance the overall cost and trend metrics by incentivizing employees to be healthier. We need to invest the $100 for gym membership that will reduce cardiac care by $10,000, the $500 for plant based and organic nutrition that will save $50,000 by knocking out colon cancer and the time and energy in stress management that lengthens lives and creates quality outcomes. We spend one third of our lives working and its nice to see companies looking at this unsustainable situation and trying to make it better.
Be mindful, be watchful and good luck!