America’s Trillion-Dollar Healthcare Waste Reduction Opportunity

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America’s Trillion-Dollar Healthcare Waste Reduction Opportunity

The U.S. healthcare sector represents 17 percent of GDP. That amounts to roughly $2.9 trillion per year. This makes the U.S. healthcare sector the world’s largest, both as a share of GDP and in absolute spending.1

It is also the best, in terms of offering the widest range of resources. While America’s aggregate healthcare outcomes are worse than those in some other nations, this seems to be due almost totally to demography and lifestyle choices outside the control of the healthcare sector.

The reason healthcare is so controversial is that it’s a huge part of the economy that is used by virtually everyone, and is forecast to grow far larger in the coming years.

According to the Centers for Medicare and Medicaid Services, growth rates in U.S. health spending, which had dropped to historic lows in recent years, snapped back in 2014 and are forecast to continue rising at a accelerated pace over the next decade.

The return to faster growth is a result of three factors:

  1. Expanded insurance coverage under the Affordable Care Act
  2. A revived economy
  3. Demographic growth of Medicare expenditures as Baby Boomer beneficiaries begin to enter their 70s

American spending on all healthcare grew 5.5 percent in 2014 and likely grew 5.3 percent in 2015. In the years through 2024, The Wall Street Journal reports that the growth rate for healthcare spending is expected to average 5.8 percent, peaking at 6.3 percent in 2020.2

The consequences are significant for federal and state governments, which by 2024 will be responsible for paying around 47 percent of the nation’s health bills, up from 43 percent in 2013. In all, healthcare will comprise about a fifth of the U.S. economy by 2024, and the growth rate will exceed the expected average growth in gross domestic product by 1.1 percentage points.

About 78 million people will be enrolled in Medicaid by 2024, continuing to outstrip Medicare, the federal insurance program for people 65 and older which will have 70 million enrollees. However, those Medicare beneficiaries will become increasingly expensive as they age and seek more care, particularly from hospitals...

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