Monday, February 25, 2013

Healthcare Costs

An associate referred me to a Time Magazine article, which abhorred healthcare pricing.
These were my comments:

Thanks for sending the Time Magazine article on Healthcare.

Interesting, but I think we have to look at this in context with our total society.

The financial industry has divided our economy into sectors. Each sector includes only publicly traded companies of similar business. For example, a Health sector, a Construction sector, an Energy sector, etc. Fidelity Investments has a long list of sectors and the ETF list is even longer. Investment profits for individuals are highest, when a sector's prices are increasing more than for other sectors. The price increase is usually based on higher average profits for the individual companies in the sector. Of these various sectors, I have dealt off and on with Healthcare, but it has not been an especially attractive investment. This means Healthcare company profits are not extraordinarily high in comparison with companies involved in other sectors.

However, that says nothing about the total size of the sector relative to the size of other sectors, and relative to the size it might be under different conditions. Usually, the sector size is related to public interest in the products or services of the sector. For example, the Energy sector is very large, because of the large volume of energy products (gasoline, Diesel, natural gas, coal, wind, etc.) that the public desires.

The Healthcare sector in the US is very large, because the public desires the products and services of healthcare companies and individuals. Those include hospitals, pharmaceutical companies, medical equipment manufacturers, doctors, nurses, and other practitioners.

Two questions arise. Why is the Healthcare sector is so large in the US, compared to other countries? Should it be smaller?

The US public generally has more disposable income than most other countries. Food, housing, and energy costs are significantly lower than in most countries, as related to percentage of annual income. This disposable income can be used for less urgent items and services, such as entertainment, personal care, and health care. In most cases, healthcare is not an urgent item, but the public sees life as of limited duration. All people die. The public also sees anecdotal cases where life is presumably extended through medical treatment. Therefore, the general conviction is that health care can extend life and justifies use of disposable income.

The public attitude on life is related to religion. Almost all agree that God has made us individually and will take us away individually. A few generations ago, the public was willing to accept a pre-determined lifespan for each individual. With the decline of religious doctrine acceptance, the public now believes more in self-determination and that the time differential between life introduction and cessation is somewhat controllable. The public is willing to pay, in order to extend the difference.

In addition, a socialistic US government has done two things to expand the desire of the American public for increased healthcare, which automatically feeds the growth of the industry. The introduction of the Affordable Healthcare Act, has created a belief in the American public mind that government has reduced the price of healthcare, and with this bargain, the public can buy more of it. Secondly, with the increasing socialization of the economy, as fostered by the US government, the public is more convinced that healthcare is a right of existence, and that the government will arrange to have others pay for it.

In total, market forces are at work in the Healthcare system, in spite of government attempts at socialization. While profits of the industry are not unusually high, the industry is expanding at an inordinate rate. However, it is an economic bubble based on disposable income, and is likely to collapse at some indeterminate future time.