Why Healthcare Is Killing America

By: Bud Conrad | Fri, Jun 12, 2009
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Healthcare is the biggest segment of our economy. In the debate over who should pay for what or, increasingly, for whom, most people don't stop to understand just how large a portion of our society's money is dedicated to healthcare.

For some perspective, as a share of GDP, the U.S. spends about twice that of other advanced nations. This is an important reason why the U.S. is increasingly uncompetitive in global manufacturing. It is, for instance, the most important factor (besides poor management) that General Motors and Chrysler are going bankrupt.

Going forward, the situation is guaranteed to get worse. The Obama administration is committed to major reform to cover the 40 million people not now covered by insurance. Once everyone has insurance, with many paying nothing at all for coverage, patients won't care what it costs, and the system will quickly spin out of control.

And it's already out of control. I recently spent one day in the hospital due to a broken arm, which cost on the order of $100,000. Remarkably, that eye-opening amount still doesn't include the ambulance, the doctors, the x-rays, the CT scans, or the anesthesiologist. I'm still getting bills. The system is far more broken than is widely understood, unless you have had a recent bad experience.

Projections for healthcare are particularly problematic because of the demographics of so many people born just after World War II. Soon, there will be less than three people in the workforce for each retired person. That will result in huge taxes on the few workers to supply the expensive end-of-life medical care for the retirees (and it is in the latter years where medical expenses really begin to rack up).

This bubble was predicted and a government trust fund was set up. Unfortunately, as is typically the case, the government couldn't keep its hands off the money, and so it has already been spent. The outlook is not good. In fact, in just over 10 years from now - by 2020 - the demands on the government for Social Security and Medicare will get so high that they cannot be met. And it gets worse from there.

It's a safe bet, based on history, that the government will once again try to print its way out of the problem - but all that will do is further destroy the dollar and drive interest rates up even more. Just to be clear, this is not just about a government program gone awry, but as much or even more so a demographic problem - which makes it all the more intractable.

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Author: Bud Conrad

Bud Conrad

Bud Conrad

Bud Conrad holds a Bachelor of Engineering degree from Yale and an MBA from Harvard. He has held positions with IBM, CDC, Amdahl, and Tandem. Currently, he serves as a local board member of the National Association of Business Economics and teaches graduate courses in investing at Golden Gate University. Bud, a futures investor for 25 years and a full-time investor for a decade, is also a regular lecturer for American Association of Individual Investors. In addition, as chief economist at Casey Research, he produces original analysis for Casey Research, including unique charts and research on the economy and investment markets.

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