USA health care spending increased at a faster rate than inflation in 2013, yet again; increasing 3.5%. Total health expenditures reached $2.9 trillion, 17.4% of the nation’s Gross Domestic Product (GDP) or $9,255 per person.
While this remains bad news the rate at which heath care is increasingly costing those in the USA has been slower the last 5 years than it has been in past years. Basically the system is getting worse at a slower rate than we used to be, so while that isn’t great, it beats getting worse as quickly as we used to be. For the last 5 years the rate of increase has been between 3.6% and 4.1%.
GDP has increased more than inflation. As the GDP grows the economy has more production for society to split. The split between the extremely wealthy and the rest of society has become much more weighted to the extremely wealthy (they have taken most of the gains to the overall economy in the last 20 years). Health care has a similar track record of devouring the gains made by the economy. This has resulted in health care spending soaring over the decades in an absolute basis and as a percentage of GDP.
The slow down in how badly the health care system has performed in the USA has resulted in the share of GDP taken by the health care system finally stabilizing. Health care spending has remained near 17.4% since 2009. While hardly great news, this is much better news than we have had in the last 30 years from the USA health care system. The percentage of GDP taken by the USA health care system is double what other rich countries spend with no better health results.
It is similar to if a team started as a championship team and then got worse every year and now they have finally stopped getting even worse. Granted they have become the worst team in the league but if, say, their record has now been 5-55 for 3 years in a row, they at least are not winning fewer game in each subsequent year anymore. But you can hardly think you are doing a great job when you are clearly the worst team each and every year.
Obviously there is a need for much much more improvement in the USA health care system. Still stopping the growth in spending, as a percent of GDP, is a positive step toward drastically decreasing it to reach a level more in live with all other rich countries. Even this goal is only to have the USA reach a level of mediocrity. If you actually believe the USA can to better than mediocre that would imply a combination of drastic declines in spending (close to 50%) and drastic gains in outcomes. Decreasing spending by 50% would put the USA at essentially the definition of mediocre – middling result with average spending.
Health Spending by Type of Service or Product
- Hospital Care: Hospital spending increased 4.3% to $936.9 billion in 2013 compared to 5.7% growth in 2012. The lower growth in 2013 was influenced by growth in both prices and non-price factors (which include the use and intensity of services).
- Physician and Clinical Services: Spending on physician and clinical services increased 3.8% in 2013 to $586.7 billion, from 4.5% growth in 2012. Slower price growth in 2013 was the main cause of the slowdown, as prices grew less than 0.1%, due in part to the sequester and a zero-percent payment update.
Provide easy, new access to credit facilitates sales. For that reason businesses want such easy access maintained. They don’t want people unable to buy just because they don’t have the money.
Financial institutions make a great deal of money providing easy access to credit. They don’t want to slow it down. While they do want to reduce fraud, they are perfectly happy to allow a fair amount of fraud while they can still make a lot of money.
What this means is the financial system has less incentive to eliminate identity theft than the people that have to clean up after it happens to them. There should be better ways to make identity theft much more difficult.
At a lessor level it should also be more difficult to steal one credit card (which also creates a big hassle for us, in trying to clean things up after fraud occurs). I suggested a way to make credit cards more secure and useful. When Apple Pay was announced I learned they are doing basically what I suggested.
Apple Pay doesn’t share information that can be used to steal your credit card. Apple Pay gives the retailer a 1 time use code for that purchase. It can’t be used, even if someone steals it to use your credit card for more purchases. I also believe Apple Pay doesn’t share other details with the retailer, though maybe I am wrong – I think it is just like you giving them cash (they don’t have your name, address, phone number, etc.).
Much of the information businesses share in the USA is considered private in Europe and companies are not allowed to share that personal information. This makes identity theft and invasions of your privacy more difficult. I wish the USA would move more in that direction.
If you have details stolen (a wallet…) you can put a note with credit agencies that results in them be less free to make it easy for financial institutions to give credit without sensible protections against misuse. But you can’t do this just as a matter of course. I believe we should have the ability to protect ourselves from the massive headache caused by businesses providing credit in our name. But we don’t have such protection now, because of the big money in keeping credit super easy (and thus fraud fairly easy).
Having to clean up after identity you may well have to hire someone to help clean up your credit report. To do so, look for credit repair companies with good reviews and a good reputation.
I would imagine choosing to put in extra protections against identity theft would mean we would have less easy access to credit. For example, I wish I could say you cannot provide a new credit under my name that isn’t using my address on file and without confirmation from my email. Also you are required to send an email, send a text message and send a postal letter, and update my credit agency file (in a way I can view) one week before credit is allowed.
There should also be options such as you must get a positive reply from me. A citizen choosing to have better protection against identity theft would give up immediate access to credit. But I would happily do so. I believe millions of others would too. And given how many people are victims every years, millions or hundreds of thousand a new customers for such a service would likely result.
I continue to believe the choices for investors are much more challenging than they normally are, as I have written about several times. Though maybe soon, this will just be the new normal (in which case investors won’t have the fairly easy choices they have had for much of the last 100 years).
In previous posts I have discussed the value of real estate investments in this investing climate. Real estate is one way to cope with the challenges of extremely low yields today.
There are many advantages to city property, in the right city. When I was looking at my first house I looked for something that would be easy to rent out. The most important factor to minimize vacancy is high demand. If there is high demand, the worst you should face is the need to lower your asking price.
An additional consideration in buying condos (your only option in large urban centers like New York City, seen in my photo of the Empire State Building) are condo fees. Fees and taxes can make positive cash flow a challenge and they continue when the property is vacant thus creating more risk for the investor. Of course, in popular markets and good times rents are very attractive for owners and price increases can make them great investments.
During downturns rental property that is not in high demand can be vacant no matter the price. And those properties with some, but not overwhelming, demand will face the need for dramatic rent decreases to minimize vacancy (and large declines if you need to sell). My purchase was 3 blocks from a metro stop (close in to Washington DC). All housing near metro stops in DC have high demand and that close in to the city has even higher demand.
In over 10 years I have had maybe 2 months of vacancy – the first year I messed up; I was new to trying to rent places out and believed people were going to sign the lease because they said they would but then they backed out. I think I may have had 1 more month sometime, but maybe not, I can’t really remember.
I have considered tourist property but have decided against it so far. The rental yield are higher but you have higher vacancy rates, which is manageable, but also much more property management issues to deal with. In order to cope with that you need to hire a property manager, very carefully. You need to carefully check their experience, reliability and competence.
And even for residential real estate the hassles of dealing with the property management yourself may lead investors to use property managers. This cuts into the advantages of direct real estate investments and so if you are going to use property managers then looking at REITs has to be considered. I believe if you are sensible direct real estate investments would normally return more but the risks are significantly higher and the hassle is somewhat to significantly higher. Likely the decision on whether to use direct real estate investing is more about personal preference than just a decision on which option would be a better investment.
I was recently interviewed on equities.com, read the full interview – Financial Blogger Profile: John Hunter. Some quotes from the interview:
John Hunter: I look for good individual investments, but I also weigh my guesses about long term macroeconomic conditions in making investment commitments. I think there is much more risk to the drastic measures central banks have been making for the past few years than the market is factoring in. I think the poor job regulating risk in the financial system is also very risky at the macroeconomic level.
I don’t have any real idea of what the chance of massive economic failure is, but I am much more worried today than I have been. Pretty much, my worry has remained the same over the last few years. We did avoid an immediate meltdown, though we still had plenty of economic pain. Yet, in my opinion, the risk has remained very high for the last few years, but people seem to think central banks can continue this extraordinary behavior without consequences; I see a great deal of risk in the economy.
Three macro-economic factors make healthcare an appealing investment. First, the aging population should provide a booming market. Second, the huge increase in rich people globally that can afford very expensive medicine again provides an ever-growing market. Third, the broken healthcare system in the USA results in exceedingly high-priced medical care in a very large and rich market.
I also close out the interview with some tips I have shared on this blog over the years
John Hunter: I can’t pick one, but I can pick a few short pieces of advice:
- Save 15%, or more, of your income and invest it wisely. If you want to buy more, then earn more, or save extra until you can pay for it with the extra savings.
- Minimize costs on investments, use Vanguard or similar low fee funds. Buying individual stocks reduces even the costs of Vanguard. There are tradeoffs to diversity of your portfolio when buying individual stocks.
- Pay attention to the overall risk of the portfolio, and even beyond that, your entire financial picture. For example, in the USA we have extra healthcare expense risk that is outside our portfolio risk, but is part of our entire financial picture. Building your portfolio with extra-portfolio risks in mind is wise. Don’t get fooled into thinking about the risks of investments taken individually, even though that is what you will continually be bombarded with.
I think those that find this blog worthwhile will also enjoy the interview so I hope you read the full interview.