Virgil Bretz is co-founder and CEO of MacroHealth, a healthcare fintech platform.
Warren Buffett famously described U.S. healthcare as “a hungry tapeworm on the American economy.” This problem was important enough to prompt Berkshire Hathaway, Amazon and JPMorgan to embark on a collaborative effort to cut healthcare costs for their 1 million collective employees. Yet, this problem was intractable enough that after forming in 2018, the dream team disbanded after three years, declaring that “the tapeworm won.” Still, these organizations and their leaders deserve applause for their attempt.
Since then, U.S. health spending has continued to increase at a rate faster than the GDP, growing nearly 35% between the five years from 2018 to 2023, and this year will easily surpass $5 trillion. This growth hasn’t only been a major driver of general inflation but also a constraint on U.S. business competitiveness versus other nations.
The Business Burden Of A Broken Market
American businesses are burdened by financial healthcare costs that far exceed those of their global counterparts. In the U.S., per capita healthcare spending (in 2023) was more than $13,400, while other developed countries spent an average of $7,400. This means comparable countries spent an average of 55 cents for every dollar we spent on healthcare, per person.
The significant direct cost of employee healthcare often influences where companies choose to grow or allocate resources. For many employers, healthcare costs may force them to hire fewer workers, reduce benefits or limit investment in innovation. That ripple effect is felt across the economy.
As important as these direct financial input costs are on American business competitiveness, perhaps more important are the intended and actual outcomes of this spending on U.S. competitiveness. Healthcare spending is a form of “investment” in human capital. What kind of a “return” are we achieving?
A report published by the U.S. Department of Health and Human Services by the outgoing administration in January 2021 noted “a thriving economy requires a healthy workforce.” Yet, despite the significantly higher investment in human healthcare, the U.S. often lags behind international peers in measures such as life expectancy, all-cause mortality and maternal mortality.
The health of U.S. workers impacts the competitiveness of our labor availability and productivity. The degree of our health disadvantage is an indirect cost on business.
To illustrate the total impact of these direct and indirect costs together, the CDC estimated that diabetes costs $307 billion in direct treatment costs and an additional $106 billion in indirect costs such as inability to work and reduced productivity annually.
What We Don’t Know Is Costing Us
One of the main reasons these costs continue to burden employers is the lack of transparency in how healthcare is priced and delivered. Healthcare is one of the few areas of business where costs can vary tenfold for the same service with no explanation. As healthcare buyers, employers typically don’t know (paywall) what they’re paying for, whether the price is fair or whether a better option exists across the street. We would never tolerate the idea of booking a hotel room without knowing what amenities it has or if it costs $80 or $800 per night, yet this expectation is considered entirely acceptable in healthcare.
The result is higher prices for goods and services, smaller raises for workers, fewer resources for innovation and growth and, in some cases, the decision to outsource jobs just to stay competitive. We can do better.
The Tools Are On The Table
The good news is, we finally have the data and tools to fix this. Over the last several years, the federal government has mandated transparency rules that require insurance payers and employers to provide employees with real information about healthcare quality and pricing, including personal out-of-pocket costs.
This is a game changer, or perhaps a tapeworm killer. In aggregate, U.S. employers are enterprise healthcare buyers responsible for trillions in healthcare purchasing. Just as they do throughout the other parts of their supply chains, they can leverage this data to select more effective providers and provider networks, manage spending more efficiently and ensure the delivery of higher-quality care.
Informed, intelligent marketplaces already exist in other industries with clear quality comparisons and timely feedback. Consider how Amazon displays multiple sellers for the same product, highlights price differences and includes customer ratings. It provides buyers with the tools to make quick and informed decisions. It’s time for healthcare to catch up.
Employers Can Lead The Way
If we do this right, the economic impact could be massive. Even a 10% reduction in employer healthcare costs would free up hundreds of billions of dollars. This money could be reinvested in wages, product development and innovation to drive competitiveness and growth.
This isn’t about cutting care. It’s about making sure employers have the same visibility and control over their healthcare spend that they have in every other area of business.
So, why hasn’t it happened yet? Healthcare is complex by design. The current system benefits from confusion and fragmentation. But employers have a great deal of power. They’re best positioned to demand information and a clear path forward.
An intelligent marketplace for healthcare that’s driven by quality and price information to make rational decisions isn’t an impossible dream. It’s a requirement for a central part of our human-capital-powered economy that’s in desperate need of modernization. And it’s a step that gives U.S. businesses the space to thrive and drive innovation. That shift then could ripple far beyond healthcare, improving cost efficiency across entire industries.
The tapeworm is real. But we now have the instruments to remove it.
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