How Much Of Our Economy Is Just Keeping Boomers Alive?

0:00 I know it's not going to come as a shock to any of you

0:02 watching when I say that the healthcare

0:04 industry in America is incredibly broken.

0:06 We spend almost double most other advanced

0:09 economies and yet we have measurably worse outcomes,

0:12 lower life expectancy, higher infant mortality,

0:14 more easily preventable deaths, far lower early intervention methods,

0:18 not to mention the general stress that goes along with the trip to the hospital,

0:22 which means a lot of people just don't go until it's too late.

0:26 Now again, I know none of this is shocking to you,

0:29 but these frictions, failures,

0:31 and financial incentives have all become so ingrained into a system that has

0:35 in turn become so ingrained into our country

0:37 that it raises a rather concerning question.

0:39 Would it even be possible to unfuck the health

0:43 care system without destroying the economy in the process?

0:46 The USA is the largest market in the world thanks

0:49 to the disproportionate share of our economy dedicated to consumer spending.

0:53 This is a statistic that even I

0:55 have highlighted here before on this channel because

0:57 it makes us look like we just

0:59 love buying overpriced trucks and useless consumer junk.

1:02 And while maybe that's still true,

1:04 if you remove healthcare spending from this equation,

1:06 we are actually right in line with most other pure countries.

1:09 Put another way, if we actually demolish the health

1:12 care system and built something somewhat efficient in its place,

1:15 we would cut out as much as 10% of our GDP.

1:18 Now, 10% of our entire economic output going

1:21 towards spinning the wheels of medical bureaucracy isn't great.

1:24 But this broken window still represents millions of jobs,

1:27 not to mention a lot of our financial system.

1:30 They might contribute nothing outside of justifying their own existence.

1:33 But now that they are there, they are extremely hard to remove.

1:37 Now, I know what you might be thinking.

1:39 Just because something is hard doesn't mean we shouldn't do it.

1:42 And even for the people who don't believe in socialized medicine,

1:45 the bureaucratic bloat in healthcare is still a problem.

1:47 But it's also important to realize that no policy

1:50 maker wants to preside over millions of lost jobs,

1:52 even if it would fix one of the biggest ongoing burdens on the nation.

1:57 Oh yeah, and one last thing.

1:59 Before all of you non-Americans start feeling too smug about the rock

2:03 and a hard place we have wedged

2:04 ourselves into, it's probably worth exploring how

2:06 we have exported this issue across the world to the point where there

2:09 is a pretty good chance we are making your health outcomes worse as well.

2:13 I think what's happening today is actually quite important which is is

2:17 a reflection of the uh sprawling

2:19 bureaucracy that's actually making America sick.

2:21 Families have to check their bank account before seeing a doctor.

2:26 The result is that manageable conditions go untreated until they

2:30 become emergencies which is worse of course for the patient.

2:34 Younger Americans die earlier than young people in other developed countries.

2:39 That statistics drags down the overall American life expectancy.

2:43 American men ranked last among the 17 countries in that study.

2:47 Women, by the way, were second to last.

2:50 Now, before we get into it, I think a bit of context is in order.

2:54 About 5 years ago, I was personally very

2:56 much a part of the problem in this industry.

2:59 I worked as an investment banker

3:01 specializing in businesses operating specifically in healthcare.

3:03 The scale of the regulations and business activity

3:07 that takes place in the system between you

3:09 and your medical career was big enough that several

3:11 firms could specialize in just serving these companies.

3:14 The fact that several investment banks can be kept afloat just off

3:17 the fees they charge as a middleman on transactions between other middlemen

3:21 in the medical industry should give you a sense of just how

3:24 much bloat has been piled onto the end goal of treating illness.

3:27 In fact, the broken incentives, lobbying, anti-competitive business practices,

3:31 and simple entrenched interest was part of the reason

3:33 why I started this channel to begin with.

3:35 It's easy and honestly a little bit cathartic to anthropomorphize

3:38 the players in this game and group them into heroes and villains.

3:42 But to get a good understanding of the problem,

3:44 it's a lot more productive to follow the simple

3:46 conflicting incentives that have log jammed the system

3:48 so badly that it's basically impossible to get

3:50 things done without stepping on someone else's toes.

3:53 So in the interest of fairness,

3:54 I want to start with the doctors themselves because of course typically

3:58 they get much less blame than something like an insurance company because

4:01 well you know they actually achieve something but they still have incentives

4:05 of their own and bodies that lobby aggressively to protect those interests.

4:09 Becoming a doctor and especially a specialist takes a long

4:13 time and puts most students into a massive amount of debt.

4:16 According to the AAMC,

4:18 the median medical student was graduating $25,000 in debt.

4:21 And that's accounting for some people who were able

4:24 to get a scholarship or had parents to fund their education.

4:27 For students going the private college route,

4:29 that number can be as high as $400,000.

4:32 To compensate for these immense upfront costs and several

4:34 years of loss earnings compared to their peers,

4:36 it's always been the expectation that American doctors are paid extremely well.

4:41 And on average, they are.

4:42 Physicians in America are paid on average almost double

4:45 that of other OECD countries

4:47 and even extremely high-income outliers like Switzerland.

4:50 Oh, and as something of foreshadowing,

4:52 you might have noticed that Canada is right up there with us.

4:55 But more on that later.

4:56 In a lot of other countries,

4:58 being a doctor is still a prestigious and highly respected job.

5:01 But it doesn't come with nearly the same expectation of earnings.

5:04 And in America, this wasn't by mistake either.

5:07 The American Medical Association, which represents physicians,

5:10 has lobbyed Congress relentlessly to limit residency

5:13 positions for students graduating from medical school.

5:15 The Medicare graduate medical education funding has

5:18 remained more or less intact since 1997.

5:20 But during that same time, we have added 70 million people to our population.

5:24 This has all limited the supply of doctors

5:27 to the point where the AAMC estimates that we

5:30 will have 139,000 fewer physicians than we need

5:32 by 2033 as our population continues to age.

5:35 But on the demand side, there has been just as much meddling.

5:38 One of the other big pushes by the AMA is to make sure

5:41 that there are lots of things that can only legally be done by a doctor,

5:45 even when they could be done by a nurse practitioner, a physician assistant,

5:48 or a non-fysician specialist,

5:50 like an occupational therapist for a lot of this work.

5:53 Now, of course, something like brain surgery

5:55 should probably require a specialist to be present,

5:57 but a lot of the tasks that legally only

6:00 doctors can perform really aren't that important or that sensitive.

6:03 One of the most egregious examples of this scope creep is the amount

6:06 of time that doctors spend justifying routine

6:08 prescriptions and procedures to health insurance providers.

6:11 Now, despite being some more

6:12 foreshadowing about how bureaucracy creates bureaucracy,

6:14 even if this was all totally necessary, most of this work is simple data entry,

6:19 which could easily be done by a trained receptionist.

6:22 But because only doctors are deemed worthy of these specific tasks,

6:25 they have to spend their valuable time filling out online forms,

6:28 a cost which is ultimately passed along to their patients.

6:31 America has by far the highest medical

6:33 administration cost per capita anywhere in the world.

6:36 We spend more than triple the runner up which

6:38 is Germany and bureaucratic administration is basically their cultural identity.

6:43 Mandated inefficiency is just one of the causes.

6:45 A simple combination of bottlenecking the number

6:48 of doctors entering the field and then wasting their time once they are there

6:51 means that their hours become extremely valuable.

6:53 Medical schools have realized this which means they can charge more.

6:57 And even the doctors themselves who largely do just

6:59 want to help people aren't going to turn down

7:02 a far higher than average income because they need

7:04 it to pay off their far higher than average debt.

7:07 The same goes for things like indemnity insurance, licensing, and training.

7:10 All of these things can be expensive because doctors are paid well.

7:13 But doctors need to be paid well because everything

7:15 they do to maintain their professional standings is expensive.

7:19 But all right, so far all of this is still only

7:22 counting the groups that do still largely want to help people.

7:25 And of course, these little inefficiencies

7:27 have snowballed into something much larger.

7:29 There are fewer than a million direct patient care physicians in America,

7:33 but over 20 million people employed by the healthcare industry in total,

7:36 with an alarming share doing very little

7:38 in the way of actually caring for anybody's health.

7:40 So, it's time to learn how money works to find out how

7:44 it got this bad and why it's become almost impossible to undo.

7:47 If you've ever looked at a system like

7:49 healthcare and wondered why it never seems to change,

7:52 then this free report from HubSpot called Industries Right

7:54 for Disruption is exactly what you should read next.

7:56 It breaks down the industries that are most overdue

7:59 for major change and explains what's holding them back.

8:01 This report covers everything from healthcare

8:03 and education to real estate and insurance.

8:05 Basically, the sectors where outdated business

8:08 models and regulation have created massive inefficiencies.

8:10 If you've ever looked at an industry and thought,

8:13 "How has nobody fixed this yet?" This report digs into exactly that.

8:16 My favorite section is the breakdown of what

8:18 makes an industry disruptible in the first place.

8:21 Things like high customer frustration, fragmented incumbents,

8:23 and regulatory modes that are starting to crack.

8:25 It's the kind of framework that actually changes how you evaluate opportunities.

8:28 Whether you're looking to build something in one of these spaces,

8:32 or just want to understand where the biggest shifts are coming,

8:35 this is worth bookmarking.

8:36 This resource was made by HubSpot, who's sponsoring this video.

8:39 Download it for free at the link

8:41 in my description and see what sectors are next.

8:43 Okay, so another group that is often overlooked

8:46 in this whole equation are the hospitals themselves.

8:48 Like a lot of things in the economy,

8:51 hospitals and practices have become another entrenched strain

8:53 on the system simply because of how consolidated they have become.

8:57 Medical groups have become so dominant

8:59 in certain areas that patients effectively have no other options if they want

9:03 a certain procedure outside of traveling several hours.

9:05 At the same time, the number of doctors that run their own private practice has

9:09 been consistently shrinking as the industry pressure

9:11 has pushed doctors into these collective health systems.

9:14 Oh, and well, you know, I had to bring it up eventually.

9:18 But the Government Accountability Office has

9:19 also pointed out the role of private

9:22 equity in strategically buying up regional medical

9:24 practices to create local monopolies on care.

9:26 Now, anti-competitive practices are nothing new in any industry anymore.

9:30 The FTC has been infamously flaccid

9:32 with their enforcement for the last 45 years.

9:35 But the medical industry in particular gets away

9:37 with a lot more than it should for two specific reasons.

9:40 The first is that healthcare is complicated.

9:42 The average regulator hasn't been to medical school to argue against

9:46 industry groups claiming that a merger is necessary for patient outcomes.

9:49 The second is that the actual costs

9:51 that come out of these mergers are extraordinarily opaque.

9:54 Of course, public enemy number one

9:56 in this whole game are the private insurance companies.

9:58 And don't worry, we will get to them soon enough.

10:01 But a lot of these combined groups have become so large

10:03 that not even insurance providers can push back against their market power.

10:07 If a hospital system has a monopoly over a critical medical service in an area,

10:11 people will change their insurance if

10:13 their current insurance provider doesn't cover that network.

10:16 Large insurers do have more negotiating power than individual payers.

10:19 But if a hospital is the only game in town, there really isn't much they can do.

10:24 This consolidation has also pushed insurers

10:26 into all or nothing contracts where large

10:28 health systems will require insurers to include

10:31 all their facilities in their coverage,

10:32 including the expensive ones, or else they won't provide access to any of them.

10:37 Now, obviously, health insurers aren't the victim here.

10:39 But in certain areas,

10:40 this does prevent them from making a narrower network of providers

10:44 just offering basic services for a potentially more cost-effective plan.

10:48 All or nothing contracts also incentivize hospitals

10:50 to provide services that may not have been demanded.

10:53 even by the massively distorted market since

10:55 they are being strongarmed into covering it anyway.

10:58 Even for services provided to patients on Medicare,

11:01 there are logical incentives that push up prices.

11:04 One of the key groups that decide how much a medical service

11:07 should cost Medicare is the Specialty

11:09 Society Relative Value Scale Update Committee.

11:11 A bit of a mouthful, so it's normally called Ruck.

11:14 This is a group of 31 physicians who volunteer to provide

11:17 guidance on how to value a physician's work for computing healthcare prices.

11:21 Now, naturally, a group of physicians would like

11:23 to say that physicians are worth quite a lot.

11:26 But this group is also overwhelmingly made up of specialists,

11:29 creating a bias that overvalues specialist procedures over simple primary care.

11:33 Now, the reason why this is important is because the prices

11:36 this group lays out are almost always adopted by Medicare.

11:39 And the prices adopted by Medicare act as a price floor template

11:43 for the rest of the industry as a whole with various built-in markups.

11:47 Honestly, it's not too dissimilar to how government treasuries determine

11:49 the rates that people pay on their home loans and credit cards.

11:53 All of these conflicting groups obviously create a lot

11:55 of friction in an already very complex industry,

11:58 which also allows for other groups to cash in in ways

12:01 that are harder to notice with everything else going on.

12:04 Pharmaceutical companies make roughly 40%

12:06 of their global revenue here in America,

12:08 even though we have 4% of the world's population.

12:11 It's no secret that we massively overpay for medicine.

12:14 But within this whole mess, who's going to notice?

12:17 The US market has become so lucrative that we

12:20 have effectively subsidized R&D for the rest of the world

12:23 because selling a new drug to Americans is so

12:25 profitable that every other country can basically just break even.

12:28 And then of course, boxing this whole thing in are health insurance companies,

12:32 which may get some push back from some of the big health care groups,

12:35 but can still ultimately pass everything along to regular consumers

12:38 in costs that are usually obfiscated by employer healthare plans.

12:41 These guys keep everything out of sight and out of mind

12:45 for most people until they actually need to deal with it.

12:48 And then of course they have an incentive to delay, deny, and defend.

12:51 Even if it did function without this log jam of conflicting interests,

12:55 healthcare is never going to be a normal market.

12:58 The information asymmetry is huge.

13:00 The groups paying the bills are rarely the ones receiving the support.

13:04 Prices are borderline impossible to find.

13:05 And even if you could get access to this information and actually understand it,

13:09 you can't shop around while you're dying.

13:12 Now, it certainly doesn't help that the regulators who should be in there trying

13:17 to direct this traffic jam towards something

13:19 slightly more functional are being paid off

13:20 by these various parties to let them get a little bit further ahead in traffic

13:24 at the expense of making it impossible to fix the system as a whole.

13:28 According to Open Secrets,

13:29 the healthc care sector is the number one lobbying spender in the country,

13:32 spending almost 3/4 of a billion dollars in 2024 alone,

13:36 just at the federal level.

13:37 But now, the thing is, this has been going on for so long that even

13:42 if it was completely fixed and ironed out tomorrow,

13:44 there is too much built up in it.

13:46 Every one of these groups employs tens of thousands of people to negotiate,

13:49 coordinate, lobby, market to, or just plain old sue all of the other groups.

13:53 Each and every one of these groups

13:55 is just trying to serve their own self-interest,

13:58 but none of those interests are aligned.

14:00 And the group that is consistently made to compromise is the patient

14:03 right in the middle of everything

14:05 with the least understanding and negotiating power.

14:08 Another slightly darker visual metaphor is that often

14:11 rats will get their tails caught together.

14:12 And as they run to try and free themselves,

14:15 they only end up pulling the knot tighter.

14:18 Collectively, this administrative bloat built to service

14:20 the administrative bloat is one of the largest employers

14:23 in the country and at least up until recently

14:25 has been one of the only industries safe from layoffs.

14:28 If we could snap our fingers tomorrow and replace

14:30 our healthcare system with something like what exists in Australia,

14:33 we would lose 7 12% of our economic

14:36 uh productivity and shed millions of these jobs.

14:40 It's also worth noting that Australia's

14:42 system is not exactly an unfair comparison.

14:45 They also have very well-compensated doctors on average.

14:47 They have extremely good health outcomes and rely

14:50 on a blended system of private health insurance and public Medicare.

14:54 Either way, this would be a larger hit

14:56 to both of these numbers than the global financial crisis.

14:59 However, that doesn't mean it's not worth trying because over time,

15:03 this problem is only getting worse.

15:05 The size of the healthcare industry has consistently been

15:08 growing faster than the size of the overall economy.

15:10 By 2033, the Centers for Medicare and Medicaid

15:13 Services predicts that more than 1/5if of our entire

15:16 economy will be dedicated to healthcare

15:18 and the apparatus that is built up around it.

15:20 But just like healthcare has slowly grown on the economy,

15:23 it can also slowly be disassembled over time as well.

15:27 Simple things like antitrust enforcement, proper lobbying, regulation,

15:30 and more transparency will at the very least deal with the elements

15:34 that are intentionally trying to pile more logs into the log jam.

15:37 We may lose some jobs like internal auditors for the legal firms,

15:40 servicing the investment banks,

15:42 managing the deals between market information providers,

15:44 giving leads to pharmaceutical sales businesses that sell

15:47 third-party generic substitutes to regional healthcare groups.

15:50 But that's just measuring the uh downsides.

15:52 One of the biggest hurdles to skilled

15:55 professionals starting businesses of their own

15:57 is losing the healthcare security that comes

15:59 along with being a skilled professional.

16:01 Removing one of the biggest obstacles to genuine

16:03 business development in the long term would be far

16:06 healthier for the economy than piling another layer

16:08 of administration on top of our health care system.

16:10 Finally, it might also solve what some consider to be

16:13 one of the most existential problems in the world.

16:16 We aren't having enough babies.

16:17 But when a visit to the hospital can be bankrupting,

16:20 maybe this shouldn't be too shocking, especially to the same group of people who

16:24 want to replace us all with AI anyway.

16:26 But go and watch this video next to find out

16:28 why they still really want you to have a child anyway.

16:31 because it gets really weird.

16:32 There was a lot more to talk about in this video which I

16:35 will be writing a newsletter on in my totally free newsletter compounded daily.

16:38 So, make sure to sign up for that if you want to learn about it more.

16:42 And don't forget to like and subscribe to keep on learning how money works.