Thank you for trying to shed light on a massively complex industry, Andrew. How are administrative costs illustrated in this diagram? Both commercial health plans and government programs surely have admin costs? And curious how physician costs were parceled out from hospital costs given the percentage of physicians that are employed by hospital systems.
I don't know where my reply went - I could've sworn I had it since you quicky replied after this was posted! Anyway, I recently ran into an org that made a very similar financial flow (and even took it a step further) that helps explain the admin costs. Check it out here: https://goinvo.github.io/healthcare-flow/
Mostly irrelevant now, but as to why I didn't initially include admin costs/overhead/profits/exec comp it was something that took a lot more research and estimations than the CMS health expenditure data I had. A lot of it is buried in individual company financial statements and industry reports, but check out some of the cool interactive version of the chart in the link. It even has an Airtable with the data available!
It depicts execs, admin/non-clinical staff taking about 50% more than doctors. And I suspect that's an underestimate.
Overall, I believe we focus on the wrong end of the equation. Rather than ask why we are spending so much on healthcare services, we might consider a different question: Why are so many Americans in need of healthcare services? Chronic diseases are the main driver of HC costs and lifestyle/behavior and SDOH are the main drivers of chronic diseases. We are using medicine to try to cure a predominantly social/societal ill, and unsurprisingly, failing.
This is utterly brilliant, and something I think about constantly. It proves what I’ve long thought is true, the insanity is entrenched. we need to design our own solution, simply adopting the German or UK model won’t work. I definitely would be interested to see Singapore!!
Thanks Emily for the kind words! The problems are so deep, yet so abstract that it's hard to talk about it. It's like untangling a knot - starting with one thread helps us get to see the whole solution.
And you're right about adopting a new model: because of how abstractly complicated this is, it's easy for the rhetoric to default to "tear it all down and copy someone else". But there's so much more nuance to it than that.
Will take your suggestion for Singapore in mind and will probably put out another deep-dive in the future!
It seems to me as an outsider that the driver behind the Singapore system is to keep the pretence that mandatory central contributions aren't a tax, so Singapore can promote itself as an ultra low tax country.
Can I recommend that you examine Taiwan as well. Their health care system is great. I feel like we could learn a lot from it, and even more from their educational system (which is superior to ours for elementary and secondary education).
Thanks Bonnie for the support! The problems are deep and numerous, but it's also hopefully a great way to distill the important pieces... what is it that we want for US healthcare? We are all connected and will collectively be a part of the answer.
It’s worth noting that the statutory health insurers in Germany are, as required by law, non profits. We could call them health unions, perhaps. Their staff and C-suite are comfortably salaried, but there are no shareholders.
It has happened to me twice that my health insurance closed their yearly budget with too much of a surplus, and I like all their members got a check in the mail.
Oh man Andrew. You took your beautiful flow diagram of US Healthcare spend and took it to the next ten levels! This is a brilliant piece of analysis and critique. You have to come present this on our podcast to help dedicate wider. I’ll ping you. Beautiful work!
Thanks so much Stuart - your support means so much to me! I'm so glad because rather than just present the star of the show (the painstakingly-mapped US diagram), I wanted to make sure there was some contrast to other systems and also call out specific areas of significance.
A chart tells a lot, but I'm hoping what I can glean from it also means a lot - the analysis and critique is crucial to differentiate this from "wow isn't that crazy" to "this means SOMETHING to us".
Healthcare is in trouble because it’s been taken out of the hands of patients and providers. Government rules, price controls, and endless bureaucracy make care slower, more expensive, and less effective. Central Banks create credit driving price inflation. Even “free” healthcare isn’t free—someone pays, and patients lose choice.
The fix is simple: Remove government interference and central bank inflationary policies. Let people make decisions with their own money and let providers compete on quality and cost. Better healthcare, efficiency, and real compassion follow naturally.
Outstanding treatise! Now if only there was a solution to our 80+ year-old dilemma ;-) Fortunately, there is. Sadly, it's not even remotely likely because any systemic fix will require an overhaul to our tax code (mostly to shift the enormous tax relief that employers get for "providing" expensive and uncapped health benefits). The best way to think of Employer Sponsored Health Insurance (ESI) is really as the tax that it is - on wages. Like slowly boiled frogs, Americans have learned to live with this systemic flaw as permanent and unchangeable. And the reason changing the tax code is so unlikely - even though polls favor universal coverage and/or single payer? It's entirely unrelated to healthcare. "Campaign finance reform isn't the biggest problem facing the country, but it's the first." Lawrence Lessig
I love this, but you are incorrect in thinking that the provision of British-style healthcare would require tax increases. If implemented without too much corruption it should be a wash. Simply replace employer health insurance with a payroll tax. Ban medical malpractice lawsuits and med mal insurance (oh, the increases in care quality from that alone will be glorious), and replace this with an inspector general with the power to provide disability insurance approval and the dismissal and or removal of license of doctors, nurses and other medical professionals.
We ban for-profit hospitals and care providers while allowing pharma and medical device companies to remain private and for-profit.
The best part about this is that it will massively favor firms that already provide health insurance while slamming vial, disgusting employers who do not with a massive tax increase. The taxation of part-time workers might be tricky, but we can figure it out. Best of all, we can make care better by laying off all the absurd games in current discriminatory pricing schemes. The health insurers will be upset, as will their shareholders, so some kind of compensation might be in order -(say the payment of book value to shareholders), but we can provide insurance to everyone for the same price we are paying now. Over-paid doctors and executives will hate it, but there is no where for them to go. They can pound sand. We should also massively increase the size of medical school classes, subsidize public medical schools to reduce tuition to a reasonable amount and put strict rules in place to prevent the needless hazing currently dumped on residents. We can fix this reasonably, but only if we have politicians with the courage to do so. If we cannot, we will add yet another pile of pressures that will lead to the end of our democracy. Trump is a clown. If he were more charismatic and likable, people would be screaming for revolution, and not the socialist kind. We are one charming general away from empire, and the first fix will be in healthcare because the masses will love it, and doctors making unreasonably high compensation, or worse, administrators making unreasonably high comp, they will have no supporters, and if they find a way to cause trouble, the General can lock them up, or worse, get social media to raise up their neighbors to harass them and their families into silence or exile.
What too many politicians fail to understand is how angry people are, and how many young men increasingly have nothing to lose. There is nothing more dangerous than masses of single, destitute men, and for the first time since the Depression, we have them now, and they make up a far larger percentage of the population than in the 1930's. Check out the number of men 18-55 who are not employed nor looking for work nor in school or training. The number used to be like 2% back in the 1950's. Now it is over ten times that. These men can be mobilized, and we lack sufficient police and military FTE's to stop them. I wish our billionaire class had the courage to point this out and make the necessary changes to prevent revolution. We are so much closer to violent uprising than people realize. If it were to come now, there is no way to stop it.
Instead we will continue to muddle along, with record-braking deficits after the large government social transfers in history, mostly to upper middle class baby boomers who bought Rolexes, Ferraris and mansions while younger generations lost everything. COVID cost us more than WW2, with nothing to show for it. We can hope inflation will reduce that obscenity placed on the back of future generations, but the angry destitute men hiding in their mothers' basements might decide to put the game controller down and take what they should have been given. We are one charming, charismatic leader away from fascism or worse. Empire.
As a non-American, I think that the solution for a country as unequal as the US must be a 2-tier system. The base tier should be aggressively optimized to reduce cost, and available to everyone. The second tier will be based on private insurance and compite on services, etc. But the existence of the base tier would curb the costs here as well.
So having worked at the ONLY hospital that is/was historically part of both the US and Canadian Healthcare system, Roseau MN and I have seen the difference firsthand. The major difference.....waiting. You tell a Canadian that they have to go to Winnipeg for an ERCP for example and they have an appointment in 5 months, they say okay and wander off. You say that to an American, they go ballistic. Had a traumatic amputated thumb on consecutive weekends, American was sent to Mayo (everyone else was busy) got thumb reattached, Canadian which was actually an easier case, had skin flap folded over and was now a thumb short....per orders from Winnipeg, After telling them the plan since I had the Mayo plan in front of me from week before, "hold it cowboy, we don't re implant them." .....told the Canadians they could go to Fargo and pay out of pocket they just shrugged and let us fix the hole. They take rationing of care US doesn't, we risk being sued, they a lot less so, we want maximal care now and they will wait, we spend most of money on end of life care, they do not. Dialysis or Heart Caths on 90 year old in UK, ah....no, here ,...sure. can we change this for universaL care in USA? I just see no stomach for the transition.....It is great you talk about it, I guess, but a waste of breath, I would love universal care, Obama care was a failure imho, but to cut back on care for Baby Boomers...omg.....words like "death panels" all coming back......the gnashing of teeth and complaints sheez......maybe when the Baby boomers thin out.....hard to say that, I love my parents..... my mom the bleeding liberal retired union rep for the teachers union, would never tolerate any rationing, since she "deserves" what she has, she worked hard, and that is just that. My grandmother God rest her soul, right as Goldwater, God bless her soul, she wanted everything done to, Like me believed in universal care, but limits? As long as not for her.....about the only thing they agreed on politically....luckily Grandma died at home at 94, but did have a heart cath at 90, because it wasn't her problem if my generation had to pay more taxes to pay for it, ......
Canadians accept rationed care and endless waiting because generations of politicians, media, and organized labour (with a "u") have drilled into our maple syrup brains that there are only 2 possible healthcare models:
Canadian: designed in the Soviet Union, with outcomes as expected. We pay a lot, wait a lot, and the quality of care we ultimately get is inconsistent, often mediocre. Roughly 20% of Canadians do not have access to a family doctor, so our ERs are fall of people with non acute problems.
American: Canucks are told the US system forces the average American to remove their own appendix with a chunk of dirty broken glass, bankrupts everyone other than billionaires, and (at least according to primetime TV dramas) has hospitals with really attractive staff that spend most of their time fornicating with each other.
While all the rich Canucks from Toronto go to Bufalo, Vancouver-Seattle, Winnipeg Grand Forks, Thunder Bay Duluth and are happy keeping the myth going so the traffic south is light...
And hey, you spend 72 hours straight in a hospital, you got to have sex somewhere, I never did anything like that (sic) my wife and I had our own pager code (let you guess on that), sadly she transferred to another hospital for my last 2 years of training
Thank you for trying to shed light on a massively complex industry, Andrew. How are administrative costs illustrated in this diagram? Both commercial health plans and government programs surely have admin costs? And curious how physician costs were parceled out from hospital costs given the percentage of physicians that are employed by hospital systems.
I don't know where my reply went - I could've sworn I had it since you quicky replied after this was posted! Anyway, I recently ran into an org that made a very similar financial flow (and even took it a step further) that helps explain the admin costs. Check it out here: https://goinvo.github.io/healthcare-flow/
Mostly irrelevant now, but as to why I didn't initially include admin costs/overhead/profits/exec comp it was something that took a lot more research and estimations than the CMS health expenditure data I had. A lot of it is buried in individual company financial statements and industry reports, but check out some of the cool interactive version of the chart in the link. It even has an Airtable with the data available!
Thanks for the cool link.
It depicts execs, admin/non-clinical staff taking about 50% more than doctors. And I suspect that's an underestimate.
Overall, I believe we focus on the wrong end of the equation. Rather than ask why we are spending so much on healthcare services, we might consider a different question: Why are so many Americans in need of healthcare services? Chronic diseases are the main driver of HC costs and lifestyle/behavior and SDOH are the main drivers of chronic diseases. We are using medicine to try to cure a predominantly social/societal ill, and unsurprisingly, failing.
This is utterly brilliant, and something I think about constantly. It proves what I’ve long thought is true, the insanity is entrenched. we need to design our own solution, simply adopting the German or UK model won’t work. I definitely would be interested to see Singapore!!
Thanks Emily for the kind words! The problems are so deep, yet so abstract that it's hard to talk about it. It's like untangling a knot - starting with one thread helps us get to see the whole solution.
And you're right about adopting a new model: because of how abstractly complicated this is, it's easy for the rhetoric to default to "tear it all down and copy someone else". But there's so much more nuance to it than that.
Will take your suggestion for Singapore in mind and will probably put out another deep-dive in the future!
It seems to me as an outsider that the driver behind the Singapore system is to keep the pretence that mandatory central contributions aren't a tax, so Singapore can promote itself as an ultra low tax country.
Can I recommend that you examine Taiwan as well. Their health care system is great. I feel like we could learn a lot from it, and even more from their educational system (which is superior to ours for elementary and secondary education).
This is really profound and thought provoking. The way you laid this out really points out so many problems. Thank you for the time you put into this.
Thanks Bonnie for the support! The problems are deep and numerous, but it's also hopefully a great way to distill the important pieces... what is it that we want for US healthcare? We are all connected and will collectively be a part of the answer.
It’s worth noting that the statutory health insurers in Germany are, as required by law, non profits. We could call them health unions, perhaps. Their staff and C-suite are comfortably salaried, but there are no shareholders.
It has happened to me twice that my health insurance closed their yearly budget with too much of a surplus, and I like all their members got a check in the mail.
Very well articulated article with brilliant insights. I learnt a lot from it.
Oh man Andrew. You took your beautiful flow diagram of US Healthcare spend and took it to the next ten levels! This is a brilliant piece of analysis and critique. You have to come present this on our podcast to help dedicate wider. I’ll ping you. Beautiful work!
Thanks so much Stuart - your support means so much to me! I'm so glad because rather than just present the star of the show (the painstakingly-mapped US diagram), I wanted to make sure there was some contrast to other systems and also call out specific areas of significance.
A chart tells a lot, but I'm hoping what I can glean from it also means a lot - the analysis and critique is crucial to differentiate this from "wow isn't that crazy" to "this means SOMETHING to us".
Healthcare is in trouble because it’s been taken out of the hands of patients and providers. Government rules, price controls, and endless bureaucracy make care slower, more expensive, and less effective. Central Banks create credit driving price inflation. Even “free” healthcare isn’t free—someone pays, and patients lose choice.
The fix is simple: Remove government interference and central bank inflationary policies. Let people make decisions with their own money and let providers compete on quality and cost. Better healthcare, efficiency, and real compassion follow naturally.
Excellent exposition
Outstanding treatise! Now if only there was a solution to our 80+ year-old dilemma ;-) Fortunately, there is. Sadly, it's not even remotely likely because any systemic fix will require an overhaul to our tax code (mostly to shift the enormous tax relief that employers get for "providing" expensive and uncapped health benefits). The best way to think of Employer Sponsored Health Insurance (ESI) is really as the tax that it is - on wages. Like slowly boiled frogs, Americans have learned to live with this systemic flaw as permanent and unchangeable. And the reason changing the tax code is so unlikely - even though polls favor universal coverage and/or single payer? It's entirely unrelated to healthcare. "Campaign finance reform isn't the biggest problem facing the country, but it's the first." Lawrence Lessig
I love this, but you are incorrect in thinking that the provision of British-style healthcare would require tax increases. If implemented without too much corruption it should be a wash. Simply replace employer health insurance with a payroll tax. Ban medical malpractice lawsuits and med mal insurance (oh, the increases in care quality from that alone will be glorious), and replace this with an inspector general with the power to provide disability insurance approval and the dismissal and or removal of license of doctors, nurses and other medical professionals.
We ban for-profit hospitals and care providers while allowing pharma and medical device companies to remain private and for-profit.
The best part about this is that it will massively favor firms that already provide health insurance while slamming vial, disgusting employers who do not with a massive tax increase. The taxation of part-time workers might be tricky, but we can figure it out. Best of all, we can make care better by laying off all the absurd games in current discriminatory pricing schemes. The health insurers will be upset, as will their shareholders, so some kind of compensation might be in order -(say the payment of book value to shareholders), but we can provide insurance to everyone for the same price we are paying now. Over-paid doctors and executives will hate it, but there is no where for them to go. They can pound sand. We should also massively increase the size of medical school classes, subsidize public medical schools to reduce tuition to a reasonable amount and put strict rules in place to prevent the needless hazing currently dumped on residents. We can fix this reasonably, but only if we have politicians with the courage to do so. If we cannot, we will add yet another pile of pressures that will lead to the end of our democracy. Trump is a clown. If he were more charismatic and likable, people would be screaming for revolution, and not the socialist kind. We are one charming general away from empire, and the first fix will be in healthcare because the masses will love it, and doctors making unreasonably high compensation, or worse, administrators making unreasonably high comp, they will have no supporters, and if they find a way to cause trouble, the General can lock them up, or worse, get social media to raise up their neighbors to harass them and their families into silence or exile.
What too many politicians fail to understand is how angry people are, and how many young men increasingly have nothing to lose. There is nothing more dangerous than masses of single, destitute men, and for the first time since the Depression, we have them now, and they make up a far larger percentage of the population than in the 1930's. Check out the number of men 18-55 who are not employed nor looking for work nor in school or training. The number used to be like 2% back in the 1950's. Now it is over ten times that. These men can be mobilized, and we lack sufficient police and military FTE's to stop them. I wish our billionaire class had the courage to point this out and make the necessary changes to prevent revolution. We are so much closer to violent uprising than people realize. If it were to come now, there is no way to stop it.
Instead we will continue to muddle along, with record-braking deficits after the large government social transfers in history, mostly to upper middle class baby boomers who bought Rolexes, Ferraris and mansions while younger generations lost everything. COVID cost us more than WW2, with nothing to show for it. We can hope inflation will reduce that obscenity placed on the back of future generations, but the angry destitute men hiding in their mothers' basements might decide to put the game controller down and take what they should have been given. We are one charming, charismatic leader away from fascism or worse. Empire.
As a non-American, I think that the solution for a country as unequal as the US must be a 2-tier system. The base tier should be aggressively optimized to reduce cost, and available to everyone. The second tier will be based on private insurance and compite on services, etc. But the existence of the base tier would curb the costs here as well.
So having worked at the ONLY hospital that is/was historically part of both the US and Canadian Healthcare system, Roseau MN and I have seen the difference firsthand. The major difference.....waiting. You tell a Canadian that they have to go to Winnipeg for an ERCP for example and they have an appointment in 5 months, they say okay and wander off. You say that to an American, they go ballistic. Had a traumatic amputated thumb on consecutive weekends, American was sent to Mayo (everyone else was busy) got thumb reattached, Canadian which was actually an easier case, had skin flap folded over and was now a thumb short....per orders from Winnipeg, After telling them the plan since I had the Mayo plan in front of me from week before, "hold it cowboy, we don't re implant them." .....told the Canadians they could go to Fargo and pay out of pocket they just shrugged and let us fix the hole. They take rationing of care US doesn't, we risk being sued, they a lot less so, we want maximal care now and they will wait, we spend most of money on end of life care, they do not. Dialysis or Heart Caths on 90 year old in UK, ah....no, here ,...sure. can we change this for universaL care in USA? I just see no stomach for the transition.....It is great you talk about it, I guess, but a waste of breath, I would love universal care, Obama care was a failure imho, but to cut back on care for Baby Boomers...omg.....words like "death panels" all coming back......the gnashing of teeth and complaints sheez......maybe when the Baby boomers thin out.....hard to say that, I love my parents..... my mom the bleeding liberal retired union rep for the teachers union, would never tolerate any rationing, since she "deserves" what she has, she worked hard, and that is just that. My grandmother God rest her soul, right as Goldwater, God bless her soul, she wanted everything done to, Like me believed in universal care, but limits? As long as not for her.....about the only thing they agreed on politically....luckily Grandma died at home at 94, but did have a heart cath at 90, because it wasn't her problem if my generation had to pay more taxes to pay for it, ......
Canadians accept rationed care and endless waiting because generations of politicians, media, and organized labour (with a "u") have drilled into our maple syrup brains that there are only 2 possible healthcare models:
Canadian: designed in the Soviet Union, with outcomes as expected. We pay a lot, wait a lot, and the quality of care we ultimately get is inconsistent, often mediocre. Roughly 20% of Canadians do not have access to a family doctor, so our ERs are fall of people with non acute problems.
American: Canucks are told the US system forces the average American to remove their own appendix with a chunk of dirty broken glass, bankrupts everyone other than billionaires, and (at least according to primetime TV dramas) has hospitals with really attractive staff that spend most of their time fornicating with each other.
While all the rich Canucks from Toronto go to Bufalo, Vancouver-Seattle, Winnipeg Grand Forks, Thunder Bay Duluth and are happy keeping the myth going so the traffic south is light...
And hey, you spend 72 hours straight in a hospital, you got to have sex somewhere, I never did anything like that (sic) my wife and I had our own pager code (let you guess on that), sadly she transferred to another hospital for my last 2 years of training