The McKinsey Global Institute evaluates national economies by comparing the relative productivity of industry sectors. Their core metric for measuring wealth is per-capita GDP adjusted for purchasing power.
For example, the Institute observes that Japan's “mom and pop” retail is significantly less productive (as measured by sales, turnover and inventory costs) than America's “big box” retailers. Lower retail productivity diminishes Japan's national wealth.
The U.S. ranks among the world's richest countries as measured by GDP per capita. America's impressive wealth comes despite a very expensive and inefficient healthcare system.
According to World Bank data, healthcare consumed almost 18% of the U.S. economy in 2012, more than 50% higher than France (11.7%), the next highest-spender among large developed economies.
For healthcare, the U.S. spends more and gets less. Using the McKinsey institute's analytic framework, the U.S. spends at least $1 trillion more than other advanced economies on healthcare while achieving lower overall health status.
This $1 trillion figure aligns with the $558 billion to $1.24 trillion in wasteful healthcare spending that former CMS administrator Dr. Donald Berwick and Andrew Hackbarth identified in their 2012 article “Eliminating Waste in U.S. Health Care.”
While the AHA touts hospitals' job creation engine, it's also true that the average U.S. worker hasn't had a real wage increase since the late 1990s. While there are many causes (globalization, recessions, technology), increasing healthcare costs contribute to wage stagnation.
The last time the U.S. had robust job growth, productivity improvement and rising household incomes was during the Clinton administration (1993-2000). Interestingly, U.S. healthcare spending remained constant at 13.4% of GDP during the Clinton years.
Restrained healthcare spending in the 1990s contributed to positive economic growth. Lower health insurance premiums let workers put more cash in their pockets. With moderating healthcare costs, companies redirected resources into more productive enterprises that stimulated innovation, improved profitability and increased workers' take-home pay.
Contrary to the AHA's conclusion, current healthcare spending exacts a significant toll on the nation's economy. Employing the same logic, a more productive healthcare system (i.e., better healthcare at lower costs) would generate positive economic growth, wealth creation and real wage increases.
David Johnson spent 28 years as an investment banker at Merrill Lynch, Citigroup and BMO Capital Markets before launching 4Sight Health, a healthcare consulting firm.
