An Ultra Simple National Healthcare Ledger of the US

Tracking credits and debits in the US healthcare sector a la double-entry accounting ledger.

Talking about the healthcare industry in any nation quickly gets mired in complexity. US with its massive healthcare expenses of over $4 Billion — perhaps the most complex system in the world — is no different.

Below is an ultra-simplified version of how money flows in and out of the US healthcare sector — the sources of funds and where the spending occurs.

Here is a view of the US national health expenditures for 2020 across the healthcare ecosystem, showing the sources of funding in green (consumers, government, and employers) and recipients of the spending in red (makers of drugs or medical devices, health insurers, healthcare providers). Government administrative spend is 1% shown next to the government funding.

How Money Flows in US Healthcare — Green is source of funds; Red is spenders

To see the ecosystem of players in the US healthcare sector, see “The X-ray of a Tapeworm” depicting the 2019 US health expenditure data.

Note: While this and referenced articles focus on the US healthcare ecosystem, the ecosystem depiction is applicable to many countries with varying level of autonomy, influence, and spend by each participant, depending on the policy and laws of each country.

Here is a tabular view of that data broken out into credits (funding sources) and debits (spend areas).

By and large, the mix of inflows and outflows in 2020 have remained similar to 2019. They may have been identical but for the pandemic. Note: Each $1 above corresponds to $40 Billion!

What are key takeaways from the above?

1. Over 3/4 ths of the funding sources are government and households. Household spending includes all payments including the premium payments made to employer plans.
2. Private employers contribute less than 20% to the inflow. This is not evident from the seeming influence they have on the healthcare markets.
3. Healthcare service providers (physicians, hospitals, other care providers) account for >70% of the spend.
4. Retail prescription drugs account for only 8% of the expenses. One would think it is much higher given the sentiment around pharma pricing.
5. Insurance expenses: The net expense for insurance around 7% is seen as relatively high compared to other developed countries.

All that leaves me wondering where the real savings are hidden away. Each participant in this market tends to lay the blame for healthcare being expensive elsewhere.

However, at the system-level it is hard to see where the savings can come from and how despite many studies on the topic arguing for “massive administrative cost reduction” opportunities.

I hope this summary data spurs constructive discussions on how to optimize the spend, or better still, how to get the best outcomes from the spend we already incur.