I believe the problem with healthcare spending is that healthcare has a Pareto Distribution. 1% of the population uses 30% of healthcare spending, 10% uses 72% of healthcare. The bottom 50% of the population only costs 3% of total healthcare. Those percentages are from an this study.

The maximum costs increase exponentially over time even though most people are not using health care. The average cost per individual does not increase much. The problem is at the extreme – it’s a powerlaw curve without an upper limit. Epidemics spread according to a power-law distribution, as do hospital stay lengths and medical costs. The most anyone can do is try to slow the inflation rate of maximum costs.

Health care spending is doubling at twice the rate of the economy. 60 years ago we spent 4% of GDP on health care. 30 years ago it was 8% of GDP. Today it is 16% of GDP, and it is expected to be at least 32% by 2040. Medicare alone will overtake the entire federal tax base. We cannot raise taxes 1% or 2% to save it.

Today, the US accrued a debt of over $50 trillion and increases $3.5 trillion per year, almost entirely due to Medicare/Medicaid. Back in 2004, the accrued debt grew $11 trillion for a single year. The OECD collectively is in $100 trillion of accrued debt. There’s been a lot of talk about a healthcare induced Great Depression in the next 25-50 years unless governments take radical steps to place upper limits on healthcare spending.

It appears that healthcare is taxing the rest of the economy and slowing growth in other sectors by diverting money. By putting less money into technology, business, and the rest, the economy grows slower. As growth slows, there’s less money to spend on health care and eventually the system fails.

How much has healthcare spending already harmed technological growth? Why not cut healthcare spending to 8% GDP and divert 8% of GDP to biotech and nanotech research? Those two things will do far more for health than all the medicare waste in the world.

This is somewhat odd since heathcare spending is not strongly correlated to quality of health.

It’s not just money. This increase in spending is causing labor shortages too. There will be a major nursing shortage in the coming decades. We must either lower standards or have fewer good nurses. Either way, care becomes worse.

One possible solution is restructuring our healthcare insurance system to cover only catastrophic costs.

Healthcare insurance is not like car insurance. You don’t use car insurance to buy a car, fill a gas tank, change oil, and get a tune-up.

With a real insurance system, the user pays for all personal spending with the exception of extremely rare catastrophies. They buy insurance to spread out risk of rare events. Normal insurance only deals with a very small slice of the total costs and it caps the maximum values that may be insured. That’s how normal insurance is feasible.

Health “insurance” redistributes the total costs. That’s something different and its not sustainable. Switching to catastrophic health insurance would improve things.

At some point, there will be a shortage of healthcare in the future. Either we do it suddenly during the next great depression, or we do it gradually.

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