The damage to the USA economy due to inflated health care costs is huge. A significant portion of the excessive costs are due to policies the government enacts (which only make sense if you believe the cash given to politicians by those seeking to retain the excessive costs structure in the USA the last few decades buy the votes of the political parties and the individual politicians).

In 2015, Humira (a drug from Abbvie to treat rheumatoid arthritis that is either the highest grossing drug in the world, or close to it) costs $2,669 on average in the USA; $822 in Switzerland; $1,362 in the United Kingdom. This is the cost of a 28 day supply.

All the prices shown here are for the prices reported are the average allowed costs, which include both member cost sharing and health plan payment. So it only includes costs for those covered by health plans (it doesn’t include even much larger price tags given those without insurance in the USA).

Harvoni (a drug from Gilead to treat hepatitis C is also near the top of drugs with the largest revenue worldwide). This is also a drug that has been used as a lightning rod for the whole area of overpriced drugs. One interesting thing is this is actually one that is not nearly as inflated in the USA over other countries nearly as much as most are. Again, for a 28 day supply the costs are $16,861 in Switzerland; $22,554 in the United Kingdom and $32,114 in the USA. Obviously quite a lot but “only” double the cost in the USA instead of over triple for Humira (from Switzerland to the USA).

Tecfidera is prescribed to treat relapsing multiple sclerosis. The cost for a 30 day supply vary from $663 in the United Kingdom to $5,089 in the USA ($1,855 Switzerland).

There are actually some drugs that are more expensive outside the USA (though it is rare). OxyContin is prescribed to treat severe ongoing pain and is also abused a great deal. The prices vary from $95 in Switzerland to $590 in the United Kingdom ($265 in United States).

The report also includes the cost of medical procedures. For both the drugs and the procedures they include not only average but measures to show how variable the pricing is. As you would expect (if you pay attention to the massive pricing variation in the USA system) the variation in the cost of medical procedures is wide. For an appendectomy in the USA the 25th percentile of cost was $9,322 and for the 95th was $33,250; the average USA cost was $15,930. The average cost in Switzerland was $6,040 and in the United Kingdom was $8,009.

As has been obvious for decades the USA needs to stop allowing those benefiting from the massively large excessive health care costs in the USA from buying the Democrats and Republicans support to keep prices so high. But there has been very little good movement on this front in decades.

Related: USA Heath Care System Needs Reform – USA Health Care Spending 2013: $2.9 trillion $9,255 per person and 17.4% of GDP – Decades Later The USA Health Care System is Still a Deadly Disease for Our Economy – USA Spends $7,960 per person Compared to Around $3,800 for Other Rich Countries on Health Care with No Better Health Results (2009) – Drug Prices in the USA (2005)

With each loan you may lend as little as $25. Lending Club (and Prosper) deal with all the underwriting, collecting payments etc.. Lending Club takes 1% of payments as a fee charged to the lenders (they also take fees from the borrowers).

Borrowers can make prepayments without penalty. Lending Club waives the 1% fee on prepayments made in the first year. This may seem a minor point, and it is really, but a bit less minor than I would have guessed. I have had 2% of loans prepaid with only an average of 3 months holding time so far – much higher than I would have guessed.

On each loan you receive the payments (less a 1% fee to Lending Club) as they are made each month. Those payments include principle and interest.

This chart shows the historical performance by grade for all issued loans that were issued 18 months or more before the last day of the most recently completed quarter. Adjusted Net Annualized Return (“Adjusted NAR”) is a cumulative, annualized measure of the return on all of the money invested in loans over the life of those loans, with an adjustment for estimated future losses. From LendingClub web site Nov 2015, see their site for updated data.

Lending Club provides you a calculated interest rate based on your actual portfolio. This is nice but it is a bit overstated in that they calculate the rate based only on invested funds. So funds that are not allocated to a loan (while they earn no interest) are not factored in to your return (though they actually reduce your return). And even once funds are allocated the actual loan can take quite some time to be issued. Some are issued within a day but also I have had many take weeks to issue (and some will fail to issue after weeks of sitting idle). I wouldn’t be surprised if Lending Club doesn’t start considering funds invested until the loan is issued (which again would inflate your reported return compared to a real return), but I am not sure how Lending Club factors it in.

Return shown for my portfolio. My portfolio is currently 3% A, 25% B, 44% C, 19% D and 9% E loans. The terms of my loans are 81% 36 months and 19% 60 months.

They also don’t credit the money to you until what seems like about 5 days after the payment has been received. This also reduces your achieved rate of return, from the nominal rate charged to the borrower. I would like to assume they factor this into their calculated returns, but given the other decisions they make when calculating the return I am not certain they do.

In any case the real return is still very good compared to my other options and so if they inflate the results by 40 basis points (I don’t know what the actual discrepancy is and the uncertainty looking forward is much larger than that anyway). The expected rate is likely around 5-8% compared to about 0-.25% for me, so the slight exaggeration doesn’t matter to me.

For my portfolio (shown in the graphic above) Lending Club shows a current return of 12% with an expected return through the completion of the outstanding loans of 5.7% to 8.5%. The current return is very inflated when your portfolio is very new as you have experienced no, or very few, defaults. I will explore historical returns, returns as the portfolio ages and the expected returns in a future posts. My portfolio is currently 3% A, 25% B, 44% C, 19% D and 9% E loans. The terms of my loans are 81% 36 months and 19% 60 months.

You can read details on the loans (and filter loans on those details) for things such as: loan type, state of borrower, debt to income ratio, months since a delinquency, months since a default, monthly income, credit score, own/mortgage/rent. Lending club scores the loan quality and determines the loan interest rate depending on that (and 36 month versus 60 month term).

The more risk taken by borrowers the higher the expected returns. So if you take riskier loans you get a higher interest rate on the loan and historically even after losses from defaults the returns are greater. This brings up my biggest concern with these loans: underwriting risk. As long as Lending Club does a good job evaluating underwriting risk and properly assigning interest rates commensurate with that risk this should work very well as an investment.

As long as you have a well diversified portfolio of personal loans there is a long track record of the risk. And while plenty of risky personal loans will default, and more will default if the economy has a downturn the interest rates on the loans provides good income even after such losses. And even if things go poorly the actually losses of capital should be small (over the whole portfolio).

The discussion of investing in peer to peer loans using LendingClub will be continued in next post (next week, updated to add link to the post: Peer to Peer Portfolio Returns and The Decline in Returns as Loans Age).

Related: Looking for Yields in Stocks and Real Estate (2012) – Taking a Look at Some Dividend Aristocrat Stocks – Looking for Dividend Stocks in the Current Extremely Low Interest Rate Environment (2011) – Where to Invest for Yield Today (2010)

As my recent post noted, adding 50,000 jobs a month is the new 150,000 in the USA due to demographic changes. That means job gains in the last year have added about 180,000 jobs per month above the 50,000 needed to accommodate growth due to demographic changes (a larger population of adults.

The change in total nonfarm payroll employment for August was revised from +136,000 to +153,000, and the change for September was revised from +142,000 to +137,000. With these revisions, employment gains in August and September combined were 12,000 more than previously reported.

Household Survey Data

Both the unemployment rate (5.0%) and the number of unemployed persons (7.9 million) were essentially unchanged in October. Over the past 12 months, the unemployment rate dropped by 70 basis (from 5.7%) and 1.1 million fewer people are listed as unemployed.

Among the major worker groups, the unemployment rates for adult men (4.7%), adult women (4.5%), teenagers (15.9%), whites (4.4%), blacks (9.2%), Asians (3.5%), and Hispanics (6.3%) showed little or no change in October.

The number of long-term unemployed (those jobless for 27 weeks or more) was essentially unchanged at 2.1 million in October and has shown little change since June. These individuals accounted for 26.8% of the unemployed in October.

The civilian labor force participation rate was unchanged at 62.4% in October, following a decline of 0.2 percentage point in September. The civilian labor force participation rate has remained stubbornly low as jobs have been added to the economy quickly over the last few years. This has resulted in the unemployment rate falling more quickly than if (as usually happens) the better job prospects bring people back into the labor force (and back into looking for work – even those than gave up for awhile while the job market was bad).

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) edged down by 269,000 to 5.8 million in October. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job. Over the past 12 months, the number of persons employed part time for economic reasons has declined by 1.2 million.

Establishment Survey Data

Total nonfarm payroll employment increased by 271,000 in October.

Employment in professional and business services increased by 78,000 in October, compared with an average gain of 52,000 per month over the prior 12 months. Health care added 45,000 jobs in October. Within the industry, employment growth continued in ambulatory health care services (+27,000) and in hospitals (+18,000). Over the past year, health care has added 495,000 jobs.

Employment in retail trade rose by 44,000 in October, compared with an average monthly gain of 25,000 over the prior 12 months. Food services and drinking places added 42,000 jobs in October. Over the year,
the industry has added 368,000 jobs. Construction employment increased by 31,000 in October, following little employment change in recent months. Over the past 12 months, construction has added 233,000 jobs.

Employment in mining continued to trend down in October (-5,000). The industry has shed 109,000 jobs since reaching a recent employment peak in December 2014.

Employment in other major industries, including manufacturing, wholesale trade, transportation and warehousing, information, financial activities, and government, showed little or no change over the month.

The average workweek for all employees on private nonfarm payrolls remained at 34.5 hours in October. The manufacturing workweek edged up by 0.1 hour to 40.7 hours, and factory overtime edged up by 0.1 hour to 3.3 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls edged up by 0.1 hour to 33.7 hours.

In October, average hourly earnings for all employees on private nonfarm payrolls rose by 9 cents to $25.20, following little change in September (+1 cent). Hourly earnings have risen by 2.5 percent over the year. Average hourly earnings of private-sector production and nonsupervisory employees increased by 9 cents to $21.18 in October.

Related: USA Adds Another 255,000 Jobs. Unemployment Rate To 7.9% (October 2012) – USA Economy Adds 151,000 Jobs in October and Revisions Add 110,000 More (2010) – USA Unemployment Rate Reached 10.2% (October 2009) – Over 500,000 Jobs Disappeared in November 2008

Those days are over. Sure, there are some who prefer to build businesses traditionally, but today thanks to advancements in technology and the rise of the internet and the ability to receive and send money online, even internationally, people can start a company anywhere and operate it from anywhere else (provided local incorporation laws do not require a specific length of time spent on site).

Migrants have long moved to a new country for work, and then transferred funds home. This has been nearly completely those migrating from poor countries (or poor areas in the countries) to rich countries. Now individuals from rich countries are taking advantage of low cost countries to lower their living expenses while running most of your day to day from…just about anywhere.

Businesses Can’t Really Be Nomadic, Can They?
It’s true: not every business is suited to a nomadic lifestyle. Independent retail shops, for example: though it is possible to oversee basic operations from wherever you are, until you have a full support staff you are going to be needed onsite. Local service businesses that specialize in trades like contracting, plumbing, electrics, etc. Those are difficult to operate via telecommute. Most other companies, however, can be adapted to a global marketplace and base of operations fairly easily.

I traveled for 4 years in SE Asia while operating my business. During that time my brother took a year to travel around the world with his family while running his business. He visited clients during his travels which took him through Brazil, Turkey, South Africa, India, Singapore, Australia and more. We met up for a week in Bali. There are challenges but there are great rewards also for businesses that allow you to travel while you work.

Rice field opposite our bungalow in Ubud, Bali.

Which Businesses Are Best Suited to the Nomadic Lifestyle?
As previously stated, if you work hard enough at building your company and support team, you can run just about any sort of business from anywhere. That said, there are some companies and business types that lend themselves more easily to the nomadic lifestyle.

Chris Guillebeau covers a few of these businesses and the entrepreneurs who started them in his book, The $100 Startup. One entrepreneur, for example, runs a linguistics and translation business internationally. He loves languages and loves teaching so he moves from country to country, learning the local languages and then teaching them to tourists and expatriates who choose to move there. Guillebeau himself has turned his book into a tour, a conference (The World Domination Summit) and a series of Unconventional Guides. He travels all over the world and writes from wherever he happens to be at the time.

Other types of businesses that lend themselves well to travel and the nomadic answer include freelancing and consulting, travel based businesses, hospitality businesses, arts-based businesses (music, film, etc), teaching and anything that you can base on the web.

How to Launch and Run a Business that Travels Easily
The first thing you have to do is choose a “home base” for your company. More often than not this “home base” will need to be located within your current country of citizenship. This is because there are many strict laws governing when/where/how someone can work and run a business in a country of which they are not a citizen. It isn’t always necessary to do it this way but it is often wise as the complications of doing something else are likely not worth it unless you are making a lot of money and can afford to hire an attorney.

If you are starting up within the USA and aren’t attached to your current residence, spend some time looking at local laws and tax codes for startups and start up in the city and state that offer you the best rates and codes. Also consider setting up a company in Delaware, which will allow you to operate overseas. There are still issues with requiring business registration in any state in the USA from which you do business and personal taxes which will be based on your residence state no matter where the business is based (and you have to have some USA residence state – even if you haven’t lived in the USA in many years – it will most likely be the last state you lived in though as always you need to figure this out for your specific situation). This process can be intimidating and complicated so, if you can afford it, it’s worth hiring an attorney to help you ensure each detail is administered correctly.

Make sure you can get paid. There are lots of ways to accept payments via web payment portals. Some payment systems require you to have a current bank account in the country in which you are accepting or sending payments. It’s also a good idea to keep track of exchange rates so that you can adjust your rates to get the best deal for your expenses.

Market yourself. One of the best aspects of the global marketplace is that you can market your business as far and as wide as you like. Most of the time, however, you’ll want to start small–in your local area–and expand as you are able to afford to do so. Trying to go global right away could overwhelm you.
Work and expand. As you build your business, you’ll likely want to hire people to help you manage your operations. Take this process slowly, just like you did with your marketing. Begin searching locally and then expand beyond your local borders. Make sure you mind your tax codes.

Why limit yourself if you don’t have to? In today’s world, living and working as a nomad is easier than it has ever been.

Related: My Early Experience as a Digital Nomad: Part One, Technology – Pura Dalem Desa Pakraman, Ubud, Bali – Sungei Buloh Wetland Reserve, Singapore

The incredible policies that have created such loose credit has the world so flooded with money searching for somewhere to go that 0% is seen as attractive. This excess cash is dangerous. It is a condition that makes bubbles inflate.

Low interest rates are good for businesses seeking capital to invest. These super low rates for so long are almost certainly creating much more debt for no good purpose. And likely even very bad purposes since cash is so cheap.

One thing I didn’t realize until last month was that while the USA Federal Reserve stopped pouring additional capital into the markets by buying billions of dollars in government every month they are not taking the interest and maturing securities and reducing the massive balance sheet they have. They are actually reinvesting the interest (so in fact increasing the debt load they carry) and buying more debt anytime debt instruments they hold come due.

The Fed should stop buying even more debt than they already hold. They should not reinvest income they receive. They should reduce their balance sheet by at least $1,500,000,000,000 before they consider buying new debt.

Unless the failure to address too-big-to-fail actions (and systems that allow such action) results in another great depression threat. And if that happens again they should not take action until people responsible are sitting in jail without the possibly of bail. The last bailout just resulted in transferring billions of dollars from retires and other savers to the pockets of those creating the crisis. Doing that again when we knew that was fairly likely without changing the practices of the too-big-to-fail banks. But I would guess we will just bail them out while they sit in one of the many castles their actions at the too-big-to-fail banks bought them and big showered with more cash in the bailout from the next crisis.

How to invest in these difficult times is not an easy question to answer. I would put more money in stocks for yield (real estate investment trusts, drug companies, dividend aristocrats), I would also keep cash even if it yields 0% and actually a new category for me – peer to peer lending (which I will write about soon). Recently many dividend stocks have been sold off quite a bit (and then on top of that drug stocks sold off) so they are a much better buy today than 4 months ago. Still nothing is easy in what I see as a market with much more risk than normal.

I am almost never a fan of long term debt. I would avoid it nearly completely today (if not completely). For people that are retired and living off their dividends and interest I may have some long term debt but I would have much more in cash and short term assets (even with the very low yields). Peer to peer lending has risks but given what the fed has done to savers I would take that risk to get the larger yields. The main risk I worry about is the underwriting risk – the economic risks are fairly well known, but it is very hard to tell if the lender starts doing a poor job of underwriting.

Related: The Fed Should Raise the Fed Funds Rate – Too-Big-to-Fail Bank Created Great Recession Cost Average USA Households $50,000 to $120,000 – Buffett Calls on Bank CEOs and Boards to be Held Responsible – Historical Stock Returns

The value of being able to use the time you are moving to your destination instead of concentrating on driving is huge. And the reduction in deaths, serious injuries, injuries, damages, frustration and waste of time caused by accidents will be a huge benefit to society. Many people attempting to focus on phone calls or whatever else instead of driving create lots of that damage due to accidents.

There will also be big restructuring in how the economy works. Car sharing (such as Zipcar) will greatly increase I think and Uber and Lyft will likely be big players in a move to driverless cars. It sure seems like fewer cars will be needed. Space wasted on parking cars should be greatly reduced. Deliveries will likely see big changes. The impact on the economy will be huge. Even the health care system may see billions in savings.

Toyota is an amazingly well managed company. They should capitalize on any important shifts in the auto industry. But will they do so for driverless cars? Will there be a decrease in demand for cars so large that Toyota losses more than it wins? My guess is the decrease in demand globally will not be huge for the next 10 years (of course I could be wrong). My guess is Toyota will do well, but may be caught a bit behind, but then will come back strongly.

For those that don’t think Toyota can innovate, remember the Prius. Also they have been big investors in robots. That they haven’t turned robots into a big business yet though may be a sign of weakness (related to turning innovation into business profits).

I think Toyota will do the best of the large traditional car companies at taking advantage of this opportunity. Honda would be my second pick.

Google has been at the forefront of the driverless car efforts; I first wrote about self driving cars in 2010 about Google’s efforts (on my Curious Cat Engineering Blog). They are willing to take big gambles. They have a very good engineering culture. They are very profitable. They haven’t done much at creating profitable businesses outside of search and ads though. Still I think they may be huge winners in this area. I would guess by licensing technology to others, but things are involving quickly we will see how it plays out.

Tesla has a great engineering culture with a priority given on innovation and customer focus. They are in the car industry though I don’t lump them with the “traditional car companies.” I give weight to the value Elon Musk will bring them. They have big potential to be one of the big winners in a self driving car future. But they have yet to create much profit. Will they be able to turn promising engineering and leadership into a huge business? I think the odds are good but that is still a difficult challenge. Others have much more money than Tesla. Apple has so much money they could even buy Tesla easily.

Elon Musk recently spoke about the current state and near term future:

Apple seems like a long shot to me. It doesn’t seem like the type of business Apple has gone into in the past. The argument for doing so is the huge pile of cash they have (over $170 billion which is an absolutely huge number – it is also a bit fake in that they have started borrowing tens of billions instead of spending that cash). The moves with the cash are based on 2 circumstances. First they would have to pay large amounts of taxes to use that cash in the USA (taxes are delayed as long as they hold it overseas). And second interest rates are so low, borrowing money hardly costs them anything.

If Apple were serious about this business I think the way to enter is by buying Tesla. Tessa’s market cap is $32 billion today. Tesla’s stock is not cheap; the price reflects potential and Elon Musk more than what has been accomplished so far. But with how much money Apple has paying extra isn’t a huge issue. I would imagine Elon Musk would be worried about such a buyout but from Apple he might find it to be acceptable. There are great uses for the huge amount of cash Apple could put to use. And Apple could add value to what Tesla can deliver.

If Apple doesn’t do that I would have trouble imagining Apple as a car manufacturer. But who knows, they have enough money to do it. They could potentially go into a partnership with Tesla, Toyota or Honda (those would be my 3 choice, maybe they could try someone else but those companies can match Apple’s devotion to engineering and customers most other car companies fail to come close to the standards I think Apple should have).

It is hard for me to imagine Apple in a very strong long term partnership. They seem to like to control everything. But who knows maybe they could.

Uber, Zipcar, Lyft and others in the car sharing and ride providing market will have huge gains from this opportunity. One issue I see is how any of them profit greatly from it when it seems like the advantages are going to be available to them (and anyone else that wants to enter the business). How they keep profit margins high is difficult for me to see.

Uber is the darling of investors today. I do think they do some things incredibly well. And one thing they do incredibly poorly driverless cars would solve. They do a horrible job of providing long term value to drivers. Getting rid of drivers gets rid of one of Uber’s huge management weaknesses. I think the gains to the economy in the areas these companies operate will be gigantic, huge and enormous. But whether these companies actually make huge profits I question. They may well have nice businesses but how big those profits will be I am far from optimistic.

My guess is companies that rely on deliveries (Amazon, Pizza…) will save a bunch of money as these new innovations play out. But it will likely mainly just be savings passed on to consumers as all competitors will have the same gains. It may well be well managed companies are quicker to get advantages so Amazon may have gains for awhile but soon others will catch up.

If driverless cars come about as quickly as some are predicting the economy will benefit tremendously and we personally will too. I look forward to it. From an investing perspective I just see it as a boost to some well managed huge companies now. I don’t see investment potential for directly benefiting from this innovation (those companies I know of are huge and the driverless car market is likely not to be a majority of their profits). I am sure there are small companies that will make huge amounts but I don’t know any of them and likely predicting which will succeed is very difficult.

This innovation also dramatically shifts markets in ways that are predictable but also in ways that are not. If many more cars are owned by large fleet operators then small repair shops (those that take advantage of ignorant customers especially) may well have difficulty as fleets are managed in ways that are less easy to rip off. And with far fewer accidents their won’t be so much business to do in the first place. Also ludicrous charges for things like a new key fob will not likely be tolerated by large fleet owners (they shouldn’t exist now, it is sad that companies like Toyota that do so many thins well do such a poor job of providing customer value in this way).

Basically, I think if driverless cars they will boost the stocks of some companies I already like a bit. Toyota, Google and Amazon are all in the Curious Cat sleepwell portfolio.

The gains made from driverless cars are also going to be huge in developing markets though the state of their transportation systems may make the transition take a bit longer in some locations.

There are also going to be losers from this innovation. Warren Buffett has said car insurance companies will suffer from the safer roads (it is still a good thing, but their business will suffer). Banks and credit unions will have fewer loans (assuming fewer cars are bought by individuals as they rely on shared cars). Car parks (which have been huge cash cows in large cities – as taxi medallions were) may well see a large drop in business, though I expect this may well take longer to play out in most places (maybe NYC, San Francisco and few others may have more dramatic changes).

Related: Is Amazon Using a Costco Strategy? – USA Health Care Spending 2013: $2.9 trillion $9,255 per person and 17.4% of GDP – Using Drones to Deliver Medical Supplies in Roadless Areas – Investment Options Are Much Less Comforting Than Normal These Days (2013) – Where are Profit Margins Headed? (2011)

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.
• Other Professional Services: Spending for other professional services reached $80.2 billion in 2013, and increased 4.5%, slower than the 5.0% growth in 2012. Spending in this category includes establishments of independent health practitioners (except physicians and dentists) that primarily provide services such as physical therapy, optometry, podiatry, or chiropractic medicine.
• Dental Services: Spending for dental services increased 0.9% in 2013 to $111.0 billion, compared to 2012 when growth was 2.2%. Out-of-pocket spending for dental services accounted for 42% of all dental spending while private health insurance accounted for 47% (I am not sure how the remaining 11% was paid – medicare? VA? all government health care?)
• Other Health, Residential, and Personal Care Services spending grew 5.8% in 2013 to $148.2 billion, the same rate of growth as
  in 2012. This category includes expenditures for medical services that are generally delivered by providers in non-traditional settings such as schools, community centers, and the workplace; as well as by ambulance providers and residential mental health and substance abuse facilities.
• Home Health Care: Spending growth for freestanding home health care agencies decelerated in 2013, increasing 3.4% to $79.8 billion following growth of 4.5% in 2012. Medicare and Medicaid spending accounted for approximately 80 percent of total home health care spending in 2013.
• Nursing Care Facilities and Continuing Care Retirement Communities: Spending for freestanding nursing care facilities and continuing care retirement communities increased 2.4% in 2013 to $155.8 billion, up from growth of 2.0% in 2012. The faster growth in 2013 was primarily due to an increase in Medicare spending after a one-time downward rate adjustment for skilled nursing facilities in 2012.
• Prescription Drugs: Retail prescription drug spending grew 2.5% to $271.1 billion, compared to 0.5% growth in 2012. Faster growth in 2013 resulted from price increases for brand-name and specialty drugs, increased spending on new medicines, and increased utilization. I believe this is classified as retail to exclude all the costs for prescription drugs used in hospitals, nursing homes, etc. that is counted elsewhere.
• Durable Medical Equipment: Retail spending for durable medical equipment reached $43 billion in 2013, and increased 4.2%, slower than the 5.6% growth in 2012. Spending in this category includes items such as contact lenses, eyeglasses and hearing aids.
• Other Non-durable Medical Products: Retail spending for other non-durable medical products, such as over-the-counter medicines, medical instruments, and surgical dressings, grew 4.0% to $55.9 billion in 2013. This was a faster rate of growth than in 2012, when spending grew 1.8%.

Health Spending by Major Sources of Funds:

• Medicare: Medicare spending, which represented 20% of national health spending in 2013, grew 3.4% to $585.7 billion, a slowdown from growth of 4.0% in 2012. This slowdown was attributed largely to slower enrollment growth and impacts of the Affordable Care Act (ACA) and sequestration.
• Medicaid: Total Medicaid spending (15% of national health spending) grew 6.1% in 2013 to $449.4 billion, an acceleration from 4.0 percent growth in 2012. Federal Medicaid expenditures increased 6.2% in 2013, while state and local Medicaid expenditures grew 5.9%.
• Private Health Insurance: Overall, premiums reached $961.7 billion in 2013 (representing a 33% share of national health spending), and increased 2.8%, compared to 4.0% in 2012. The net cost ratio for private health insurance—the difference between premiums and benefits as a share of premiums—was 12.0% in 2013, the same as in 2012. Private health insurance enrollment increased 0.7% to 189.3 million in 2013, but was still 8.2 million lower than in 2007.
• Out-of-Pocket spending, which accounted for 12% of national health spending, grew 3.2% in 2013 to $339.4 billion, a deceleration from growth of 3.6% in 2012.

I am not sure what the other 20% is. I believe non-profit foundations are a portion, maybe the whole 20% (though I doubt it). Maybe government health care, VA, active duty military health care spending?

Health Spending by Type of Sponsor*

• In 2013, households accounted for the largest share of spending (28%), followed by the federal government (26%), private businesses (21%), and state and local governments (17%). My guess is charities and foundations make up the remaining 8% (though I may be wrong).
• Household health spending grew 2.8% in 2013—a slower rate of growth than the 4.8% rate in 2012—due in part to the low rate of increase in employee contributions to private health insurance premiums. Despite the slower growth in 2013, the household share of health spending has remained steady at 28% since 2010.
• Federal government spending for health care increased 3.5% in 2013 after declining 0.2% in 2012. Faster growth was influenced in part by an increase in Medicaid payments to primary care physicians mandated by the ACA. The Federal government share of health spending has decreased in recent years, from 27% in 2011 to 26% in both 2012 and 2013, primarily due to the expiration in June 2011 of enhanced federal matching rates for Medicaid mandated by the American Recovery and Reinvestment Act of 2009.
• State and local government spending increased 3.2% in 2013. This increase followed strong growth of 6.3% in 2012 and 9.3% in 2011 that was also due largely to the expiration of enhanced federal Medicaid matching rates for states. During the period 2010 – 2013, the share of health spending financed by state and local governments increased from 16% to 17%.
• Health care spending financed by private businesses increased 4.0% in 2013, much higher than the average increase of 0.7% during 2008–10 caused by recession-related job losses and declines in private health insurance enrollment during and just after the recession. The private business share of overall health spending has remained fairly steady since 2009, at about 21%.

The data in this post is provided by the US Department of Health and Human Services. I provide a direct link to the data, in my experience USA government sites break direct links fairly quickly unfortunately, in the last few years they have often just made the links to the current data, which is better than it used to be, but still is lame. They should provide permanent urls …/[year]/[report]/[specific_details] for example… if, as in this case they have maybe 10 separate document on this one report.

* Type of sponsor is defined as the entity that is ultimately responsible for financing the health care bill, such as private businesses, households, and governments. These sponsors pay health insurance premiums and out-of-pocket costs, or finance health care through dedicated taxes and/or general revenues.

The USA health care system was deemed a deadly disease by W. Edwards Deming decades ago and it has only been doing increasing damage the USA economy and society. We need to take much more effective steps to improve the system. The problems are very challenging especially because the system problems are largely created by bought and paid for political parties who have for decades allowed the health care system to damage the economy and society.

We have been making improvements in many areas within the system, but huge systemic problems have existed for decades and are being supported by those we continue to allow to serve as our elected officials. We can likely improve to being somewhat less than mediocre without fixing that problem.

We are unlikely to even be able to reach mediocre without the political parties changing their support for the entrenched interests that have retained such a poor system for so long (or us getting new political parties which doesn’t seem so likely and even if we did they would then have to also take a better approach on health care, which seems like, but isn’t necessarily certain). Since it is impossible to find a rich country with a health care system that has noticeably worse results and it isn’t possible to find any rich country that spends more than 35% less than we do, it is hard to imagine anyone supporting a worse health care system than the current one in the USA, but I suppose it is possible.

The direct accounting costs of the USA system are horrible, and those are just the direct accounting costs – it ignores the costs of millions without preventative health care, sleepness nights worrying about caring for sick children without health coverage, millions of hours spent on completing forms to try and comply with the requirements of the health care system’s endless demand for paperwork, lives crippled by health care bankruptcies…

To some extent the “Affordable Care Act” addresses some of the issues with tying health care to the employer (as the USA has done) and issues with pre-existing conditions. Those are both tremendous improvements. But the ACA leaves completely (essentially) unaddressed the systemic failure that result in the USA paying twice what other rich countries do for no better results. The ACA has some minor tweaks to try and reduce how costly the USA health care system is, but those are incredibly minor and don’t amount to even 5% of the change needed in that area just to get the USA to extremely costly compared to other rich countries (say lowering our expenses so we are only 50% more expensive than all the other rich countries instead of 100%).

And even just the relatively minor improvements the ACA made have, and continue to, drawn huge response from those who have successfully blocked improvement of the USA health care system for the last few decades. I don’t object at all, in fact I encourage, debate to improve how we implement improvement to the broken USA health care system. Continuing the last few decades of obstructionism however is not something I support, in fact it is something I find incredibly objectionable.

There are very challenging issues address to have a great health care system. Given how poorly we have done in the USA for decades there are some not that challenging improvements to make. We have given those supporting the current system decades to just do a poor job compared to every other rich country and they have failed. They don’t even have very stiff competition. Singapore is doing some good stuff, but people can object that they are small (Japan also does some good things, so do a few countries in Europe). Still it seems like we could learn a great deal from them. But overall rich countries don’t do very well, and yet compared to these poor performances the USA stands out as extremely poor in comparison to them (how you spend twice as much and still do no better is amazing). And that this goes on for decades and the special interests have prevent reform is incredible.

Sure investment bankers have done well turning the government into serving their interests at the expense of the country but it is hard to say they have done nearly as much as the health care system. Given that we are pretty easily spending $1 trillion a year (maybe $1.5 trillion) due to how bad our health care system is (compared to other rich countries) means we are willing to continue to support a system costing us in excess of $1 trillion a year. I don’t think investment banks are able to siphon that much out of the economy through their directing Fed, SEC and Treasury department policy.

The cost to continue to support such a costly and poorly run USA health care system is becoming an increasingly dire issue as we have the population in the USA age. Health care spending for those over 50 increases drastically. And the economic benefit people provide decreases drastically after retirement (for most people 60 to 70 years of age). We face a huge problem if we don’t at least improve for spending 100% more than other rich countries to spending say 60% more. Even that will be a huge drain on our economy but the USA has so much wealth we likely could support that much waste (likely that cost will be over $1 trillion a year, if we don’t make those modest improvement costs will likely be over $2 trillion a year). Those costs just mean we have $1 or $2 trillion less to spend on other areas (education, new cars, police, smart watches, coffee, air travel, military…). As you can imagine it takes quite a lot of reduction in those areas to get to $1 trillion, getting to $2 trillion is very hard to imagine.

Related: USA Health Expenditures Reached $2.8 trillion in 2012: $8,915 per person and 17.2% of GDP – USA Spent a Record $2.7 Trillion, $8,680 per person, 17.9% of GDP on Health Care in 2011 – USA Spent $2.2 Trillion, 16.2% of GDP, on Health Care in 2007 – USA Spent $7,960 Compared to $3,800 for Other Rich Countries on Health Care in 2009 with No Better Health Results – USA Health Care Costs reach 15.3% of GDP – the highest percentage ever (2003)

I also close out the interview with some tips I have shared on this blog over the years

I think those that find this blog worthwhile will also enjoy the interview so I hope you read the full interview.

Related: more interviews with John Hunter – Investment Options Are Much Less Comforting Than Normal These Days – How to Protect Your Financial Health

The situations have many differences, for example, China is a poor country growing rapidly, Japan was a rich country growing little (though in 1990 it showed more growth promise than today). Still this one of the more interesting pieces of data on how much a bubble China real estate has today. Japan suffered more than 2 decades of stagnation and one factor was the problems created by the real estate price bubble.

The global economic consequences of the extremely risky actions taken to bail out the failed too-big-too-fail banks including the massive quantitative easing are beyond anyones ability to really understand. We hope they won’t end badly that is all it amounts to. Noone can know how risky the actions to bail out the bankers is. The fact we not only bailed them out, but showered many billions of profit onto them (even after taking billions in fines for the numerous and continuing violations of law by those bailed out bankers), leaves me very worried.

It seems to me we have put enormous risk on and the main beneficiaries of the policies are the bankers that caused the mess and continue to violate laws without any consequences (other than taking a bit of the profit them make on illegal moves back sometimes).

I hope things work out. But I fear the extremely risky behavior by the central banks and politicians could end more badly than we can even imagine.

Related: Continuing to Nurture the Too-Big-To-Fail Eco-system – The Risks of Too Big to Fail Financial Institutions Have Only Gotten Worse – USA Congress Further Aids The Bankers Giving Those Politicians Piles of Cash and Risks Economic Calamity Again – Investment Options Are Much Less Comforting Than Normal These Days

The GDP is calculated was adjusted in 2013 and the data series going back in time was adjusted. These changes resulted in increasing historical GDP values and making the portion of GDP for health care to decline (for example in 2011 using the old calculation health care was 17.9% of GDP and now 2011 is shown as health care spending representing 17.3% of GDP).

While health care spending increased faster than inflation yet again, the economy actually grew at a higher rate than health care spending grew. That the spending on health care actually declined as a percentage of GDP is good news; and it may even be that this hasn’t happened for decades (I am not sure but I think that might be the case).

Still health care spending growing above the rate of inflation is bad news and something that has to change. We have to start addressing the massive excessive costs for health care in the USA versus the rest of the world. The broken USA health care system costs twice as much as other rich countries for worse results. And those are just the direct accounting costs – not the costs of millions without preventative health care, sleepness nights worrying about caring for sick children without health coverage, millions of hours spent on completing forms to try and comply with the requirements of the health care system’s endless demand for paperwork, lives crippled by health care bankruptcies…

Health Spending by Type of Service or Product: Personal Health Care

• Hospital Care: Hospital spending increased 4.9% to $882 billion in 2012.
• Physician and Clinical Services: Spending on physician and clinical services increased 4.6% in 2012 to $565 billion.
• Other Professional Services: Spending for other professional services reached $76 billion in 2012, increasing 4.5%. Spending in this category includes establishments of independent health practitioners (except physicians and dentists) that primarily provide services such as physical therapy, optometry, podiatry, and chiropractic medicine.
• Dental Services: Spending for dental services increased 3.0% in 2012 to $111 billion. Out-of-pocket spending for dental services (which accounted for 42% of all dental spending) increased 3.9% in 2012.
• Other Health, Residential, and Personal Care Services: Spending for other health, residential, and personal care services grew 4.5% in 2012 to $138 billion. This category includes expenditures for medical services that are generally delivered by providers in non-traditional settings such as schools, community centers, the workplace, ambulance providers, and residential mental health and substance abuse facilities.
• Home Health Care: Spending growth for freestanding home health care agencies accelerated in 2012, increasing 5.1% to $78 billion. Medicare and Medicaid spending accounted for approximately 81% of total home health care spending in 2012.
• Nursing Care Facilities and Continuing Care Retirement Communities: Spending for freestanding nursing care facilities and continuing care retirement communities increased 1.6% in 2012 to $152 billion.
• Prescription Drugs: Retail prescription drug spending slowed in 2012, growing 0.4% to $263 billion. The low growth in 2012 was driven largely by a slowdown in overall prices paid for retail prescription drugs, as numerous blockbuster drugs lost patent protection in late 2011 and 2012, and generic versions of those drugs became available.
• Durable Medical Equipment: Retail spending for durable medical equipment reached $41 billion in 2012, and increased 5.6 percent in 2012, the same rate of growth as in 2011. Spending in this category includes items such as contact lenses, eyeglasses and hearing aids.
• Other Non-durable Medical Products: Retail spending for other non-durable medical products, such as over-the-counter medicines, medical instruments, and surgical dressings grew 1.8% to $54 billion in 2012.

Health Spending by Major Sources of Funds:
• Medicare: Medicare spending, which represented 20% of national health spending in 2012, grew 4.8% to $573 billion.
• Medicaid: Total Medicaid spending grew 3.3% in 2012 to $421 billion. The relatively low annual rates of growth in Medicaid spending in 2011 and 2012 can be explained in part by slower enrollment growth tied to improved economic conditions and efforts by states to control health care costs. Federal Medicaid expenditures decreased 4.2% in 2012, while state and local Medicaid expenditures grew 15.0% – a result of the expiration of enhanced federal aid to states in the middle of 2011.
• Private Health Insurance: Overall, premiums reached $917 billion in 2012, an increase of 3.2%. The net cost ratio for private health insurance, the difference between premiums and benefits as a share of premiums, was 12.0% in 2012 compared with 12.4% in 2011. Private health insurance enrollment increased 0.4% to 188.0 million in 2012, but still 9.4 million lower than in 2007.
• Out-of-Pocket: Out-of-pocket spending grew 3.8% in 2012 to $328 billion.

Health Spending by Type of Sponsor*:
• In 2012, households accounted for the largest share of spending (28%), followed by the federal government (26%), private businesses (21%), and state and local governments (18%).
• The federal government financed 26% of total health spending in 2012, a slight decrease from 27% in 2011. The reduction in the federal share reflects the expiration in June 2011 of enhanced federal funding from the American Recovery and Reinvestment Act of 2009.
• The share of the health care bill financed by state and local governments increased from 17% in 2011 to 18% in 2012. This increased share of spending was due to states no longer receiving additional aid from the federal government in the form of enhanced matching rates.
• The remaining sponsors of health care maintained constant shares between 2011 and 2012 — households (28%), private businesses (21%), and other private revenues (7%).

The data in this post is provided by the US Department of Health and Human Services (they seem to remove the data each year – or at least I can’t find urls that continue to work – so direct link doesn’t work anymore).

* Type of sponsor is defined as the entity that is ultimately responsible for financing the health care bill, such as a private business, household, or government. These sponsors pay insurance premiums, out-of- pocket costs, or finance health care through dedicated taxes or general revenues.

While it is good news that the health care spending grew less than GDP did in 2012, it is a big problem that spending has grown from $8,086 per person in 2009 to $8,915 in 2012. Costs need to decrease, not just increase a fraction less than GDP. And they need to decrease for years to reduce the problem from the current catastrophic state to just bad for the economy and thus all of us.

Related: USA Spent a Record $2.7 Trillion, $8,680 per person, 17.9% of GDP on Health Care in 2011 – Health Care in the USA Cost 17.9% of GDP, $2.6 Trillion, $8,402 per person in 2010 – USA Spends Record $2.5 Trillion, $8,086 per person 17.6% of GDP on Health Care in 2009 – USA Spent $7,960 Compared to $3,800 for Other Rich Countries on Health Care in 2009 with No Better Health Results