Connecting the Dots


Connecting the Dots, Patrick Watson’s online newsletter, now lives exclusively on the Mauldin Economics website.

Please bookmark this page so you can always find his latest take on the geopolitical, cultural, and technological forces decentralizing and disrupting the global economy.

Healthcare Is Eating the Economy

October 16, 2018

Being sick is no fun, whether you’re a patient or the economy. Illness disrupts people’s lives and, economically speaking, diverts scarce resources from more productive uses.

So it would make sense to invest in keeping everyone healthy. Yet in the US, it’s common practice to treat people only after they get sick—which kind of makes sense given the way we deliver healthcare.

Pharmaceutical companies and healthcare providers get paid for delivering services to the sick. They make nothing from healthy people. Combine that with a payment system that gives patients no incentive to seek lower prices—and even prevents them from doing so—and it becomes obvious why we spend way too much.

Follow the money, and you’ll see many of our economic problems are really healthcare problems. And they’re slowly consuming the whole economy.

Photo: Getty Images

Money for Nothing

Wise consumers want the most for their money—but when the product is healthcare, Americans aren’t getting it.

Here’s a chart I showed back in March 2017. It plots life expectancy vs. per capita healthcare spending in the OECD member countries.

Image: Financial Times

The lower-right area is best. That means your country gets the highest life expectancy for the money it spends on healthcare. Japan, Chile, and most of Europe are in that quadrant.

The US is located much higher, and a little bit more to the left, than our developed-world peers. We spend far more money on healthcare, but it seems not to buy us any additional years of life.

In technical economic terms, we call this “bananas.” It makes no sense at all. Americans spend massive amounts of money for… nothing.

But it’s not nothing to the people who receive that money. Physicians, hospitals, drug companies—all make nice incomes.

The rest of us pay them, and the amount has been rising fast.

Here’s a chart from Kaiser Family Foundation showing the cost of family health coverage through an employer, broken down by employer and worker contributions.

Source: Kaiser Family Foundation

This year, insuring one family costs $19,616—composed of $14,069 from the employer and $5,547 from the worker. But economically, the worker really pays it all. The employer contribution is simply more compensation (which thankfully doesn’t get taxed).

Health insurance costs 239% more today than it did in 1999... but we’re not 239% healthier.

And that’s just the premiums. Look how fast deductibles are rising.

Source: Kaiser Family Foundation

So we spend more on premiums, and those unlucky enough to get sick spend more out of pocket. And wages haven’t kept up, so the pain is increasing.

People without employer-provided insurance are the worst off. If you make too much for Medicaid and have to buy an ACA plan, you probably pay even higher premiums for worse coverage.

This is causing significant economic damage.

More Bananas

According to the US Census Bureau, median household income was $61,372 last year. Add in employer healthcare benefits as a kind of phantom income, and it’s really more like $75,000 (for those who have employer coverage).

We saw above that the average cost of employer healthcare coverage is $19,616. So the typical household spends nearly a quarter of its income on health insurance. That doesn’t happen in other developed countries—it’s a uniquely American problem.

Photo: Getty Images

Whether you are on Medicare, Medicaid, ACA plans, or uninsured, someone covers or subsidizes your care. The money gets sucked out of the economy, one way or another.

With healthcare at 18% of GDP, it looks to me like private employers are paying too much to cover their workers, and the government pays too little to cover poor, elderly, and disabled people. And many people who need care don’t get it.

But whether you pay 18%, 25%, or something in between, it’s harming US productivity. We should be spending that money on other things, as our global competitors are.

Thorny Problem

To have a growing economy, you need productive workers. The impact of sickness varies: Some people with health conditions keep working. Others can’t work at all. Others try to work but are often absent and therefore less productive.

It affects families too. If someone’s spouse gets cancer, the worker may be perfectly healthy, but won’t produce as much.

Then there’s the time we all spend dealing with healthcare, even if we aren’t sick. You have to pick your insurance plan, find in-network providers, repeatedly give your information to different doctors, and so on. Those hours don’t show up as a “cost”—but across the population, they are a serious drag on productivity.

How do we fix this?

The good news is, it’s not rocket science. Other countries deliver better outcomes at lower costs. What we lack in the US is the political will to make major changes in such a huge economic sector. Which is understandable because the money you or I deem “waste” represents someone’s job or revenue.

This is really similar to the automation dilemma. Lots of healthcare jobs need to go away, but we can’t just leave those people on their own.

It is a thorny problem. I’d like to be optimistic we can solve it, but I don’t see how. Too many entrenched interests will fight the very changes we need to make.

So, the US will keep this weight around our national neck as we try to maintain world economic leadership. Maybe we can do it. We’re going to find out.

See you at the top,

Patrick Watson

Discuss This


We welcome your comments. Please comply with our Community Rules.


Oct. 17, 12:12 p.m.

Anecdotal references implying that the US health care system quality and service are somehow superior to other systems doesn’t create an apples to apples comparison either. 

It may be true that you can find a few statistics where the US system is better, perhaps wait time for certain medical procedures for those who can afford it for example?  If you don’t like blanket longevity, take a look at morbidity rates, or death rates for just about any disease and you will find the US rated in a similar locus of many resources being spent with worse outcomes.

No doubt if you are a person living in the top 5% of wealth or income you might not think this is a problem

Oct. 16, 5:56 p.m.

Are we sure that the outcomes are “better” or just less expensive. Expats visiting US doctors seem to think we get more service and in a more timely way. So are we comparing apples to apples? Blanket longevity tables are a poor comparison due to methods of reporting and diversity of income.

Use of this content, the Mauldin Economics website, and related sites and applications is provided under the Mauldin Economics Terms & Conditions of Use.

Unauthorized Disclosure Prohibited

The information provided in this publication is private, privileged, and confidential information, licensed for your sole individual use as a subscriber. Mauldin Economics reserves all rights to the content of this publication and related materials. Forwarding, copying, disseminating, or distributing this report in whole or in part, including substantial quotation of any portion the publication or any release of specific investment recommendations, is strictly prohibited.
Participation in such activity is grounds for immediate termination of all subscriptions of registered subscribers deemed to be involved at Mauldin Economics’ sole discretion, may violate the copyright laws of the United States, and may subject the violator to legal prosecution. Mauldin Economics reserves the right to monitor the use of this publication without disclosure by any electronic means it deems necessary and may change those means without notice at any time. If you have received this publication and are not the intended subscriber, please contact


The Mauldin Economics website, Thoughts from the Frontline, The Weekly Profit, The 10th Man, Connecting the Dots, Transformational Technology Digest, Over My Shoulder, Yield Shark, Transformational Technology Alert, Rational Bear, Street Freak, ETF 20/20, In the Money, and Mauldin Economics VIP are published by Mauldin Economics, LLC Information contained in such publications is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. The information contained in such publications is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. The opinions expressed in such publications are those of the publisher and are subject to change without notice. The information in such publications may become outdated and there is no obligation to update any such information. You are advised to discuss with your financial advisers your investment options and whether any investment is suitable for your specific needs prior to making any investments.
John Mauldin, Mauldin Economics, LLC and other entities in which he has an interest, employees, officers, family, and associates may from time to time have positions in the securities or commodities covered in these publications or web site. Corporate policies are in effect that attempt to avoid potential conflicts of interest and resolve conflicts of interest that do arise in a timely fashion.
Mauldin Economics, LLC reserves the right to cancel any subscription at any time, and if it does so it will promptly refund to the subscriber the amount of the subscription payment previously received relating to the remaining subscription period. Cancellation of a subscription may result from any unauthorized use or reproduction or rebroadcast of any Mauldin Economics publication or website, any infringement or misappropriation of Mauldin Economics, LLC’s proprietary rights, or any other reason determined in the sole discretion of Mauldin Economics, LLC.

Affiliate Notice

Mauldin Economics has affiliate agreements in place that may include fee sharing. If you have a website or newsletter and would like to be considered for inclusion in the Mauldin Economics affiliate program, please go to Likewise, from time to time Mauldin Economics may engage in affiliate programs offered by other companies, though corporate policy firmly dictates that such agreements will have no influence on any product or service recommendations, nor alter the pricing that would otherwise be available in absence of such an agreement. As always, it is important that you do your own due diligence before transacting any business with any firm, for any product or service.

© Copyright 2018 Mauldin Economics