Loading...

Forum

You need to log in to create posts and topics.

Low inflation/deflation of Needs

12

Hi Cullen, love your pragmatic approach on all things, especially in economics. It really calms fears and gives me hope.

It is my opinion, Inflation/Deflation is one of the most important matters in life (don't laugh please). I understand Buffet and other billionaires, including Bezos, are trying to do something (positive?) with the healthcare industry. Do you have any indication or hopes that these efforts may lead to tamed inflation (2%) in this sector?

Tough one. According to PCE the rate of change in costs is slowing, but it's still much higher than the overall rate of PCE change at 5% per year.

https://fred.stlouisfed.org/series/DHLCRC1Q027SBEA

Honestly, it's really hard to imagine how this dynamic changes much. You have a world that is getting older, less healthy, and a system that is basically a bunch of localized monopolies. If I had to bet I would bet that healthcare costs continue to rise faster than overall prices do. There's just too many macro forces leading to price pressure.

I'm no doctor, but if I were giving someone financial advice about general healthcare costs it would be this - don't be the average person who's becoming less and less healthy. Exercise regularly. Eat better. All that stuff. Honestly, in the long-run if you want to be the person who doesn't pay the insanely high healthcare costs (or at least pays less than average) then take better care of yourself. I know that's easier said than done and it doesn't avoid the high cost of insurance, but obesity is a major health epidemic in the USA and it is one of the main drivers of soaring healthcare costs. We need to start taking better care of ourselves and motivating each other to do the same.

"Pragmatic Capitalism is the best website on the Internet. Just trust me. Please?" - Cullen Roche

Two points: 1:) "Honestly, in the long-run if you want to be the person who doesn't pay the insanely high healthcare costs (or at least pays less than average) then take better care of yourself. "  is naive.  

My late wife exercised every day.  Her shortest runs were 6 miles.  She ran 9 marathons, including Boston twice.  She would do 10 mile cross-country skis in the mountains alone with our dog, and long mountain bike rides.  She ate carefully.  5'4" 112lb for most of the 25 years.   She was a highly skilled nurse.

She developed Ovarian Cancer.  Maybe influenced by using Baby Powder.  Who knows.   She lived 4 years after diagnosis, surgery, 4 rounds of chemo, and months of IV nutrition after her bowels were blocked by tumors.

The insurance payout was ca. $1.2 million and out of pocket under $120,00.   She did everything right and ended up as an illustration of our medical costs.  One shot she would give herself 2 days after chemo, a white blood cell booster now known to only be needed when blood counts actually crash and not prophylactically, was $4800/shot.   Some chemo charges were ca. $50,000/treatment, with a course of 10.

Much of our health care costs are not due to obese people with chronic health issues, it's the acute care needed to treat the sickest people.

2:) In large part we have used our combined private/public health care system as a source of relatively high paying employment.  It's not just the Doctors, it's much of the employment structure in medicine.   Almost 20% of workers are in health care, directly or indirectly.

Drugs get bad press, but they are only 10% of health care spending.   Across publicly traded health care companies profit margins are solid (again about 10% in aggregate) but not egregious.

So for the most part the only way to cut health care spending is to pay people working in the field less, a lot less.    This is something Sanders does not understand.

As a society we have in essence made the choice to have high health care costs because it provides a lot of good paying jobs.    Changing this without a major economic shock will take decades, if we even want to change.

 

 

 

The leading cause of death in the USA is heart disease. Obesity related diseases are the fastest growing ailments in the country. This is HIGHLY influenced by personal behavior. The fact that cancer is a thing does not diminish the fact that the leading causes of death in the country are highly influenced by what we do every day. It's like saying that we shouldn't exercise and eat healthy because car crashes occur often. So what? Lots of people die from things they cannot control. That doesn't mean it's naive to try to control for the health outcomes we actually can control.

I am VERY sorry to hear about your wife. That is terrible and traumatic, but it's also a personal anecdote that has had a profound impact on your ability to objectively analyze this subject.

As for doctor pay - the reason they get paid a lot is because the monopolies that control the system can afford to pay them a lot. Take the pricing power away from the monopolists and you take away their power to pay their people as handsomely as they do.

"Pragmatic Capitalism is the best website on the Internet. Just trust me. Please?" - Cullen Roche

So it seems like wise old Buffet identified a moat (monopoly) where BRK can benefit from for many decades. Buy more BRK, when the Buffet indicator signals to do so, in order to try to keep up with the rising healthcare costs.

I just hope their efforts at least make this industry more efficient.

Cullen, I have in fact read extensively on this subject so my personal experienced, while it does influence by thinking, is balanced with rational thinking.  My father was a highly respected Pediatrician, my wife a nurse, and I have many friends who are MD's and nurses, so I'm not without experience in the field.

However, your argument on a leading cause of death from heart disease is classic Straw Man.  The issue here is the cost of health care, not the causes of death.   My anecdote was to illustrate that 5% of patients account for 50% of health care spending.  Spending on Cancer is roughly equal to heart disease and will surpass it in the next decade.  But many of the really high cost spending is for the highest cost patients outside of cancer and heart disease.  Neo-natal care, burn care, gunshot trauma, ..., all are extremely high cost even though they don't show up near the top of causes of death.

Another anecdote on health care spending is the role of insurance.   Broad insurance coverage only became common in the 70's.   When on call (evenings and weekends0 my father would ask patients to meet him at his office (directly across the street from a hospital).  In the 70's people started saying they needed to meet in the ER because their insurance would pay in the ER.  The total charge, my father calculated (including the ER fee and his higher fee for the ER) was between 5x and 10x using the ER vs. his office.

How much is due to monopolies that control the system and how much is due to the disconnect between patients and direct costs?  My intuition is the latter has a greater impact on the economics of health care than the former.

But again, in the end, it's not just the Doctors, it's the entire chain of employment at good wages.  Changing that, without causing a massive economic shock, will take time.

 

 

Hi John,

I think we're talking past one another a bit.

My comment doesn't only pertain to heart disease. It pertains to preventable diseases as that was the point I was making. By definition, we don't know what causes cancer exactly. But heart disease, and more broadly, obesity, is preventable.

Preventable diseases are incredibly expensive and yes, largely avoidable with better behavior. The Agency for Healthcare research and Quality estimates the economic cost of cancer to be just 80B. The Milken Institute estimated the cost of obesity to be 1.4 TRILLION.

As I often say here about portfolio management - we have to focus on controlling what we can control. You can't necessarily control if cancer is going to hit you. But you can control your weight, diet, etc. Doing so is empirically associated with longer lifespan and lower healthcare costs.

 

"Pragmatic Capitalism is the best website on the Internet. Just trust me. Please?" - Cullen Roche

Cullen,

Yes there is some talking past each other.   I think however that you are overstating the case for heart disease being preventable.  I don't have free access to the medical literature anymore but for instance an article in JAMA Cardiology last year put the increase in heart disease for being overweight or obese at between 20% and 85%.   The former is in reality pretty small, and the latter is less than a factor of 2.  But lets say it is 100% for a factor of 2 increase in heart disease.   That does not make heart disease mostly preventable even if a factor of 2 would be a significant impact.

The CDC estimates the cost of cancer care in the US at 96B and the costs of heart disease, including lost productivity, at 200B.    The CDC estimates the costs of obesity in the US at 147B (but this overlaps with heart disease).

I would hope that you have the ability to estimate factors and recognize the 1.4T claim is ludicrous.    That would represent ca. 40% of our total health care spending.

Higher than heart disease or cancer is the cost of Alzheimers care which estimates are around 280B of which ca. 190B are direct costs to Medicare and Medicaid.    There is no known link between Alzheimers and Obesity, and as of yet we don't know if Alzheimers has any non-drug (yet to be developed) predisposition factors.

But my larger point is that we spend a lot on health care because we pay people well.  We can't really reduce health care costs significantly without impacting the pay of many millions of people.    While the US has the highest rates of obesity, it's not that far above other developed nations, yet these countries have health care costs ca. 2x cheaper than the US.    The reason is primarily that people in the healthcare field in the US are higher paid than in any other country.

Insurance Companies are in business to make profit, and they must offer coverage to those with extraordinary difficult circumstances.   Those that are healthy are all now paying several thousand dollars more per year via higher premiums/deductibles.

That is the tradeoff from the Affordable Care Act.   We did something that displays brotherhood, humanity, and compassion.   This isn’t free and doesn’t pay for itself.

We also are faced with higher state taxes, property taxes, and now tariffs.

We need get some sleep, eat a good breakfast tomorrow, get to the gym, and go work our butts off.   These things aren’t going to pay for themselves.

 

For those interested.  Heart disease is something I do know about - has little to do with being overweight per se.  Arterial fatty streaks, the precursor to cholesterol induced arterial plaques that rupture leading to coronary blockage and heart failure are being seen for the first time in children.  During the Vietnam war it was noticed in young soldiers.  Its getting worse.  It is completely due to intake of fats, animal and saturated fats in particular, that are consumed at much higher rates than in the mid twentieth century.   The fat-damaged arteries are susceptible then to the destructive effects of cholesterol. The only way to reverse heart disease is through a fairly strict reduction in fat intake.  (See papers by Ornish or Esselstyn)

Fat is also the main driver in type 2 diabetes.  It interferes with the ability of insulin to drive sugar out of the bloodstream into muscle tissue - fat essentially blocks the insulin receptors in muscle tissue.  The ability of a diabetic to clear sugar from the blood is severely reduced requiring higher levels of insulin than the pancreas can produce to keep sugar levels down.  Again, obesity is a secondary effect of fat intake, not the cause of the disease.

12