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The Failure of Healthcare for Profit

Americans spend more on healthcare than residents of any other developed country in the world. As a result, 14% of the U.S. market cap is weighted in this profitable sector, compared with 9% for the rest of the world. 

The U.S. healthcare system is a $2.5 trillion industry, one of the most profitable in the world. Between 2015 and 2016, the net income of health insurers jumped 46%, according to insurance company rating firm, A.M. Best.¹ In the second quarter of 2017, the nation's top six health insurers reported $6 billion in profits, up more than 29% from a year ago.² In the second quarter of this year, publicly-traded health care companies amassed $47 billion in profits on $545 billion of revenue.³ As a result, U.S. healthcare costs 17.8% of Gross Domestic Product, nearly double that of other nations.⁴

Ironically, this high cost has brought us worse, not better, outcomes. Compared to other developed nations, the U.S. ranked last in life expectancy, and experienced the worst maternal mortality rates (triple that of the United Kingdom), and more infant deaths.⁵

Even more shameful, a 2009 study by the U.S. Centers for Disease Control and Prevention found that life expectancy varies significantly according to your skin color. The average African American can expect to live to just 75, the same life expectancy that white Americans enjoyed back in 1979.⁶

The Commonwealth Fund, which ranks the health systems of developed countries, found similar results. Americans pay the most for healthcare but have a healthcare system that has ranked dead last for the last 20 years.⁷ It concluded that in the U.S., health care is a privilege, not a right. Today, 27 million Americans remain without healthcare coverage, often because they can't afford coverage, or live in a state that didn't expand Medicaid (state-sponsored coverage for those with low income and assets).⁸ 

In the U.S., life-saving drugs cost a fortune. Americans often pay thousands of dollars more for their drugs than people in other countries pay for the exact same pills. Unlike other countries, where the governments haggle with drug companies for lower prices on behalf of its citizens, Medicare is forbidden to negotiate with drug companies.

This already dire situation is likely to take a turn for the worse. Trump's recent tax law gave several big gifts to corporations. It included repatriation at a low 15.5% of $620 billion that corporations held tax-free overseas. In addition, Trump gave corporations a permanent tax cut from 35% down to 21%. According to the Congressional Budget Office, this will add $1.8 trillion to the national deficit over the coming decade. How do they plan to reduce this massive deficit? House Speaker Paul Ryan said, "We're going to get back to entitlement reform, which is how you tackle the debt and the deficit."⁹ 

The lynchpin in "entitlement reform" is an attack on Medicare benefits. Medicare is a very popular program even among Trump supporters, but after the election, Republicans won't have to worry about retribution. After the midterms, we can expect efforts to cut Medicare benefits and increase premiums during the lame duck session before the next Congress is sworn in on January 2019.

The slashing of social protection benefits adds to a growing gap between rich and poor in an economy where the top 1% of the U.S. population already owns 38.6% of the total wealth.¹º Therefore, an effort to reform healthcare in America is actually a demand for large-scale income redistribution, which is one reason the U.S. political system will be so resistant to a fundamental change.

 

¹ FactCheck.org 10/20/2017

² CNBC 8/5/2017

³ Axios 8/3/2018

⁴ ⁵ The Guardian 3/13/2018

⁶ Business Insider 6/23/2017

⁷ The Atlantic 6/22/2018

⁸ Bloomberg 4/4/2018

⁹ Washington Post 12/1/2017

¹º Los Angeles Times 6/1/2018

 

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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