Everyone complains that U.S. healthcare is too expensive and it certainly is! Where is all that money going: well over $2 trillion/year? Objective analysis shows ten reasons why we spend money on healthcare.

Ten Reasons For U.S. Healthcare Spending

1. New value

2. More people living longer

3. Action without evidence

4. Bureaucracy

5. Disconnection

6. Perverse incentives

7. Defensive Medicine

8. Adverse outcomes and errors

9. Money removed from healthcare

10. Fraud and embezzlement

We actually want to spend money on the first two. The other eight are costs we would like to minimize – elimination is desirable but improbable in the extreme.

The 19th century doctor’s black bag had little in it: strict bed rest, amputation, home remedies, and medicines made from garden plants. Today, doctors can operate on the heart without even opening the chest; replace failing organs with new ones; and prescribe pills that can target specific areas or functions within the body. Whooping cough, rabies, diphtheria, and polio have become the purview of medical historians rather than practitioners.

Modern capabilities – inconceivable in the 19th century – provide 21st century people with new value. They come with a price, sometimes astronomical. You can buy an expensive pill, say Flomax at $2 for one pill, and avoid a $20,000 surgery. You can have a quarter of a million dollar heart transplant and live, or take the cheaper route and die. We get new value and we should gladly pay for it.

There are more people today who are living longer. When you add new value to more people, two reasons for increased healthcare spending become apparent. This is spending we like. We are getting something we want for the money we spend.

Thirty percent of all healthcare dollars is paid to providers of all kinds. Thirty percent reimburses institutions: hospitals, pharmaceutical companies, wheelchair manufacturers and the like. The remainder (40% or roughly $920 billion in 2008 in the USA) just…disappears. It goes to activities and services that provide no health care for patients.

This isn’t the government we are watching, it’s junior high school…. We’re governed by self-absorbed, reckless children…. The budget war reflects inanity, incompetence and cowardice that are sadly inexplicable.

Nicholas Kristoff

In the late 1980′s the board game Jenga was popular. A tower was built out of wooden shapes, and the players attempted to remove pieces one by one until the building collapsed. Like all structures that fail, the final transition was rapid and catastrophic(non-linear system). Although I saw people try, one does not have time to replace the last piece before the blocks fall to the ground. The game of Jenga is a good analogy for the game our political leaders are playing with our healthcare system, and the final result may well be similar.

President Obama, the politicians, and many “reformers” are deeply ignorant about the structure of the healthcare system. They have extensive experience dealing with funding for schools, social security and to the military, and view the healthcare system in a similar light. They consider these programs as well behaved, linear systems, like a glass filled with water, removing some water will lower the level, but not break the glass. One can always put a few more students in a classroom, lower monthly payments, or hold war games with fewer tanks.

Rush Limbaugh has announced that there is not a single thing wrong with our healthcare system. His recent scare while vacationing in Hawaii has convinced him. After a couple days of testing and hospitalization doctors couldn’t find anything wrong. So Limbaugh now demonstrates the nationalistic chest thumping that prevents change in healthcare. He concludes, based on his solo experience, that the healthcare system is fine. We often hear from other Republicans that we have “the best healthcare system in the world.” Of course, no matter what outcomes or dependent variables you choose—we don’t. Take your pick: Longevity? Access to care? Rates or prevalence of common medical diagnoses? Costs? Infant mortality? Any of these answers show we are lacking. The insistence that we are the best in the face of contrary evidence defines a problem we are helpless to change.

Within this definition, is a major side effect of our proud individualism. That is, we focus so much on ourselves that we lack empathy. Limbaugh can’t imagine that as one of the wealthiest persons in our great country (a $400 million radio contract), he has a beyond Cadillac insurance plan, and receives the royal treatment. He assumes everyone would get that level of care. He assumes everyone is covered-and would immediately call for help if they felt a pain or spasm around their heart. What would even be more interesting would be to follow the billing process for Limbaugh’s testing and care. Hospitals and docs love it when a wealthy or Cadillac plan person comes in. Less hassles with payment means they can do their thing, without concern for costs. In this case, the hospital will bill the insurance company a huge amount-lets say 20 or 30K. The insurance will pay less than half-usually around a third. Limbaugh will pay a small amount after complicated deductions and subtractions based on contract rates no one fully understands. If Limbaugh gets stiffed and has to pay more– no problem for him-but a big problem for others who aren’t rich. Try to decipher these types of health/insurance bills and see if you can find any logic or reason to the process. But it does keep people busy and creates jobs.