Stating the obvious – healthcare reform has been pushed to the forefront. Everywhere you look there are articles supporting healthcare reform, articles advocating the status quo, articles discussing the cost of healthcare reform – articles, articles and more articles. While I am not sure what is right or wrong in terms of the various positions advocated in the myriad of articles, what I am positive about is that we are focusing on the wrong numbers. In articles on either side of the fence (and even those on the fence) numbers range from costs of $900B to well over $1T – suffice it to say in terms of dollars healthcare whether there is reform or not costs a staggering amount. In fact the numbers are so large, I have an extremely hard time wrapping my head around them. As a useless piece of trivia to store away – it is estimate a stack of dollar bills equaling $1T would be 67,000 miles in height (about 25% of the distance to the moon).

In order to better grapple with these numbers and perhaps yield more economic sense percentages are better. Percentages are used everywhere in determining affordability and viability. When one applies for a home loan, certainly the cost of the home is important, but the real driver is the debt ratio. So if you make $50K annually will you get a loan on $1M home – most likely not since a principal and interest payment is in the $4.5K per month range. The driver is not the cost/value of the house rather it is the monthly payment as a percentage of your income (which in this example is about 108% of the monthly income). The concept of using percentage allows a relative judgment of affordability. The same $1M house, if a person makes $500K, is a financial no brainer on the loan since the monthly payment as a percent of income is so much lower (about 10.8%).

So instead of getting wrapped in trying to comprehend a 67,000-mile tall stack of money, look at percentages of growth compared to a benchmark number. In the case of a country, the benchmark number that conceptually mimics the concept of annual income is the Gross Domestic Product (GDP). For the USA the most recent numbers put our GDP around $14.4T with an average growth rate, over the past ten years, of about 2.89%. So there is our baseline, perhaps as a nation if we were applying for a house loan these would be our stats. The other component is historical debt trends. Indeed the national debt has spiked especially over the past 3 years. This can be attributed to wars, recessions, bailouts and so on – in other words unforeseen anomalies, albeit huge anomalies. In any case our debt to GDP percentage has ebbed and flowed over the years, but has averaged over the past 72 years a 0.32% increase (to be fair, since 2000 that increase has averaged 2.86% growth). So what does this boil it down to, and how would it affect the nation’s ability to buy a house? Since roughly 2000, the GDP has increased 2.89%, the national debt as a percentage of debt increased about 2.86% - not bad, we could probably buy a house. Now lets jump to healthcare and hold onto your hats:

• Medicare spending has an average annual growth of 9% (each year since 1970)
• Private insurance spending has an average annual growth of 10.1% (each year since 1970)
• Health care has steadily been climbing as a percentage of the GDP – in 1980 we spent $253B (4.77% of GDP) on healthcare, $714B in 1990 (10.1% of GDP), $2.5T in 2009 (17.6% of GDP)
• It is projected that healthcare cost will continue to increase at a rate of 6.7% through 2017 taking an estimated 20% of the GDP.

As a nation, would we qualify to buy a house with these percentages – indeed not! On the flip side of this, maybe we have received tremendous care and improved health from these ever-increasing expenditures (from http://www.cdc.gov/nchs/fastats/healthy.htm & http://www.nationmaster.com/cat/hea-health&all=1) - lets look?

• Life expectancy at birth for females: 80.2 years (30^th in the world)
• Life expectancy at birth for males: 75.1 years (27^th in the world)
• Percent of persons all ages in fair or poor health: 9.9%
• Percent of adults 18 years and over who engaged in regular leisure-time physical activity: 32% (2008)
• Percent of adults 20 years and over who are obese: 34% (2005-2006) (#1 in the world, by comparison Japan’s obesity rate is 3.2%)
• Percent of adults 20 years and over with hypertension: 32% (2005-2006)
• Percent of persons 65 years and over who had received an influenza shot during the past 12 months: 67% (2008)
• Percent of persons 65 years and over who had ever received a pneumococcal vaccination: 60% (2008)
• Percent of children 19-35 months age who had received combined series (4:3:1:3) vaccination: 77% (2006)
• Percent of persons under 65 years without health insurance coverage: 17% (2008)
• Deaths per 100,000 population: 810.4
• Infant mortality rate: 6.69 deaths per 1000 live births (185^th in the world)
• Number of deaths for leading causes of death
  • Heart disease: 631,636
  • Cancer: 559,888
  • Stroke: 137,119

Are we getting a good deal for are vast expenditures – your call. Personally I would like a bit better return on investment.

So back to the topic at hand – it is the percentages when we want to get a real grasp on things. Talking in terms of billions and trillions of dollars we get lost in a sea of zeroes, but when we break it down to percentages it is much more understandable. Simply stated healthcare is growing at economically historically unsustainable rate as a percentage of our national income (measured as the GDP). Healthcare spending is outstripping GDP growth by roughly 2.5 – 3.5x. The national debt, over a similar period of time, a much more controlled growth (although distressingly large).

So when we factor in healthcare, would we as a nation be able to buy a house for ourselves, most likely not. Are we as a nation getting spun up in numbers that are so large they are best stated in scientific notation – most likely yes. Let’s get back to meaningful numbers as percentages against the GDP – this we can handle. When we do this the conclusion is that healthcare spending is simply out of control and needs adjusted. In the words of Jonathan Blum, Director of CMS, "Health care spending as a percentage of GDP (gross domestic product) is rising at an unsustainable rate. It is clear that we need health insurance reform now."

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