The U.S. Has Unique Ability To Cut Health Care Costs

Despite it’s generally dismal healthcare cost management history, the U.S. is uniquely positioned to make big progress on healthcare costs and health. It has led advanced countries in cutting smoking prevalence by more than half. A similar campaign is now gaining traction with obesity, which drives a large part of the chronic disease that accounts for 80% of U.S. healthcare cost.

This week the New York Times reported that Americans are consuming fewer calories and obesity is finally showing signs of decline. The most striking change is consumption of full-calorie soft drinks, which has declined by 25% since the late 1990s. The reversal appears to stem from people’s growing realization that they were harming their health by eating and drinking too much.

The U.S. has a big healthcare cost problem, as is well known. Mary Meeker, a venture capitalist, has been a leader calling attention to this issue; she famously drew the chart below. I refreshed the data, and it looks the same. The U.S. spends about 50% more per capita on healthcare than other countries with comparable levels of income and development. The main drivers of higher spending are higher prices for medical procedures, hospital days, and drugs; higher utilization of many medical resources; and higher administrative costs (more). Recent U.S. healthcare reform initiatives have begun to push back on some of these factors via value-based provider payments and other mechanisms, but it will be quite a while before we know if this is working.

The points in the chart represent the OECD countries. Data via the Henry J. Kaiser Family Foundation.

Despite its miserable healthcare cost management record overall, the U.S. performs well on the dimension that is potentially the most important in the long run: changing consumer behaviors that affect health. Smoking is generally considered to be the major consumer habit that is most damaging to health. Over the last 50 years, a concerted campaign against smoking in the U.S. has reduced smoking prevalence by over half, to levels that put the U.S. at the head of the class relative to peer countries. The U.S. currently spends $133 billion per year (4% of healthcare expenditure) treating tobacco-related illness; if smoking were still at the 40%+ level of the 1960s, this number could be roughly twice as great.

Smoking data via World Bank; data is for 2010–2014 (latest for each OECD country).

When it comes to obesity, the U.S. falls from head of the class to dunce position (see chart below). And obesity is hugely important to health, healthcare cost, and probably also one’s general sense of well-being. Obesity is a major factor increasing risk for several major chronic diseases that drive a large part of healthcare expenditure: cardiovascular disease ($444 billion), diabetes ($245 billion), and high blood pressure ($43 billion). That adds up to $732 billion, about 24% of U.S. healthcare expenditure.

Data via CIA.gov. Data points represent OECD countries.

Hence it’s very exciting to see that the campaign against obesity is gaining traction. The success of smoking cessation in the U.S. compared to other advanced countries suggests that the U.S. has the ability to change these types of behaviors. Reducing obesity would go a long way toward bringing U.S. healthcare costs in line, as well as greatly improving longevity and quality of life.

Entrepreneurs and start-ups are among the leaders in helping people improve their eating behavior. Both the retainer-based, intensive primary care start-ups (e.g., Iora Health, OneMedical) and the wellness platform start-ups (e.g., Welltok) are prospering by helping customers address this need and opportunity. If we are able to bring obesity levels down by half as was done with smoking, the benefits for Americans would be nothing short of “super-sized”.

============

Note: I am a partner in NAV.VC, a venture capital firm. Neither I nor my firm hold an economic interest in any of the companies mentioned in this post, but we do invest in similar companies.


Originally published at www.forbes.com on August 1, 2015.

Show your support

Clapping shows how much you appreciated Todd Hixon’s story.