1 Burning Health Care Question We Have to Answer
Jul 5th 2012 3:01PM
Updated Jul 6th 2012 1:14PM
Morgan Housel put it simply: "Obamacare lives."
There's still saber-rattling by Republicans who would like to see the legislation revoked. Maybe that will happen, but it doesn't seem likely. So instead of continuing the debate over the overhaul, I wanted to zoom back out to the one question that I see as a core of the problems facing our health care system.
Are we willing to let our health care system keep us alive?
While it may sound like a funny question, I don't think it gets any more serious.
What we know
Source: U.S. Bureau of Economic Analysis. *Health care services only. Does not include
drugs. PCE = total personal consumption expenditures.
Health care spending has been rising at incredibly high rates (but you already knew that).
Consumer spending rose roughly 6% per year from 1980 to 2011. Over that same period, total spending on health care services climbed 7.7% per year while prescription drug spending sped ahead at 11% per year. Perhaps even more striking is the fact that health care services made up less than 10% of total consumer spending in 1980, but now comprise more than 16%. Prescription drugs accounted for a mere 0.7% of consumer spending in 1980, but the nearly $300 billion that we now spend on pills is almost 3% of total spending.
While there's much hand-wringing from investors over the future of major pharmaceutical companies such as Merck (NYS: MRK) , Pfizer (NYS: PFE) , and Abbott Labs (NYS: ABT) , it's no wonder that they've been so successful historically. Over the 20-year period ending in 2011, Pfizer's operating profit grew at an average annual rate of 15%.
Similarly, it shows why investors get so excited about up-and-coming companies such as Dendreon (NAS: DNDN) -- a biotech offering a prostate cancer therapy -- and Arena Pharmaceuticals (NAS: ARNA) -- which just got the FDA go-ahead for its obesity drug. Simply put, there's a lot of money to be had making pills and offering other medical services.
But that's not the question
We know that health care spending is out of control. It's on the tip of everyone's tongue. Will Obamacare fix that? No. Will it help? Maybe. Yes. Hopefully. Possibly. Maybe not.
But Obamacare is powerless against the fact that it's the American lifestyle that is contributing the most to our health care spending problem.
Consider this: From 1996 to 2009, U.S. health care spending on pneumonia increased by $5.8 billion. That may sound like a lot but it's not. It's an average annual growth rate of just over 3%. After adjusting for inflation, it's barely any growth at all. That's also well below the 4.9% annual growth in consumer spending over the same period.
In 1996, 82,982 people in the U.S. died from pneumonia. The incidence of death from pneumonia per 100,000 people was 31.3. In 2009, 50,774 Americans died from pneumonia, while the incidence plummeted to 16.5. So we saw spending on pneumonia grow very slowly and yet its risk to Americans' health fell significantly.
I could tell a similar story of birthing babies in the U.S. Spending has grown slowly and yet the infant mortality rate has fallen from 7.3 per 1,000 births in 1996 to 6.4 in 2009.
This tells me that the smarts and ingenuity of the people and companies in our health care system can work, and work very well. When we let it.
The health care spending gravy train
Obviously, not all areas of health care are growing as slowly as pneumonia and pregnancy, or else we wouldn't be talking about a health care spending crisis. Here are a few of the areas that have seen much faster spending growth.
Total $ Change
Total % Change
Average Annual Growth
|High cholesterol||$33.3 billion||841%||18.8%|
|Disorders of the upper GI||$19.3 billion||249%||10.1%|
|Osteoarthritis and other non-traumatic joint disorders||$40.7 billion||223%||9.4%|
|Mental disorders||$51.6 billion||183%||8.3%|
Source: U.S. Department of Health and Human Services Agency for Healthcare Research and Quality. Author's calculations. From 1996 to 2009.
Look through the risk factors for these fast-growing health care spending categories and you'll see the same things pop up over and over and over again: obesity, poor diet, smoking, lack of exercise, stress, sedentary lifestyle. And what's worse is that these conditions all feed off each other and into other problems. Have diabetes? You're more likely to have digestive disorders, high cholesterol, and kidney problems. Have high cholesterol? Say hello to heart problems and stroke. Have any ongoing, chronic medical condition? Incidence is higher for depression and other mental illness.
And while mental illness may seem like an outlier here, consider that, besides chronic medical conditions, mental disorders can be precipitated by stress, divorce, and the lack of other healthy relationships. Is that a problem here in the U.S.? Check, check, and check.
As much as most of us like to decry the state of the U.S. health care system -- particularly the high spending and the lack of impressive results from that spending -- it seems like we're creating a maddeningly Sisyphean task for our health care providers. A 2010 report from the U.S. Centers for Disease Control and Prevention lamented:
No state has met the nation's Healthy People 2010 goal to lower obesity prevalence to 15%. The number of states with an obesity prevalence of 30% or more has increased to 12 states in 2010. In 2009, nine states had obesity rates of 30% or more. In 2000, no state had an obesity prevalence of 30% or more.
Meanwhile, long-term research from Carnegie Mellon University has shown that over the past 30 years, perceived stress levels have risen considerably among Americans. Is there a single person living in our 24/7 society that would doubt that for a second?
In other words, we're Humpty Dumpty, continually launching ourselves from the wall and then finger-wagging all the king's horses and all the king's men because it's costing too damn much to put us back together again.
What do we do?
I don't know, so I'm looking at you, Foolish community. As a font of creative and outside-the-box ideas, what is the answer to addressing the square-one problem that our collective lifestyle is creating for our health care system? Scroll down and weigh in (so to speak) in the comments section.
Of course, there are probably no quick fixes here. What that means is that, Obamacare or not, there are a lot of health-care-related companies that will strike it rich thanks to the trillions that we spend on health care. For one stock that my fellow Fools think is ideally positioned to cash in, check out our free special report: "Discover the Next Rule-Breaking Multibagger."
At the time this article was published The Motley Fool owns shares of Abbott Laboratories and Dendreon. Motley Fool newsletter services have recommended buying shares of Pfizer. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.Fool contributor Matt Koppenheffer owns shares of Abbott Labs, but does not have a financial interest in any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.
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