Controlling Health Care Costs: “Fighting for Our Lives”

Published on October 23, 2009

Controlling health care costs comes down to a battle cry to Americans to make healthier lifestyle choices and to invest in companies that align with that mission, said Eric Larson, ’87, founding partner at Linden LLC.

“I call this fighting for our lives,” Larson said in a keynote speech at the annual conference sponsored by the student-led Healthcare Group October 23 at Harper Center. He called the battle a “civil war for health on three fronts” — of individual Americans, of our enterprises, and of the long-term prosperity of our economy.

Larson used anecdotal data to show that “rising health care costs are threatening the viability of American enterprise:”

• General Motors pays $1,500 per car on employee and retirees health care coverage, more than it pays for steel, he said.

• He cited Andy Stern, president of Service Employees International Union, who said: “The average Fortune 500 company will spend as much on health care as it makes in profit. How can we possibly compete in the global economy with that kind of burden?”

• Larson also quoted Pete Peterson, ’51, whose Peter G. Peterson Foundation aims to raise public awareness of such economic issues as debt: “Rising health care costs are the single largest threat to our collective financial future.”

Congressional Budget Office data from 2007 put total federal debt at just under $500,000 per household, Larson said. “This is a leveraged buy-out that we did not intend.” Looking forward, Medicare and Medicaid expenses are “crowding out” other government expenses, he said.

In 1960, which was pre-Medicare and Medicaid, 75 percent of health care costs were privately financed, with the consumer paying about 50 percent of all health care costs out of pocket. “Today, the consumer pays about 12 percent, and we still complain about it,” Larson said. Public spending on health care has grown about 13 percent over 47 years since 1960, he said. As other groups – like government, employers and insurance companies – have assumed the vast majority of health care expenditures, the individual consumer’s voice has been silenced in the health care market.

Little spent on prevention

Larson said he calls the health care system “the American sick care system,” because 95 percent of medical expenditures in the United States are to treat people who are already sick. “This is a misalignment of incentives,” he said. “There aren’t incentives to assist people before they get sick, to prevent them from getting sick in the first place.”

“Wise investors would go for growth areas aimed at decreasing health care costs, increasing quality of care, improving prevention and wellness in part by improving nutrition, and making health care a consumer product”, Larson said. Examples of such areas include information technology, chronic disease management, and payment reform to ensure effectiveness of medical procedures.

Centers for Disease Control data shows that many of the health care issues in the United States are “self-inflicted damage,” Larson said. About 70 percent of all health care costs today stem from such lifestyle choices as smoking, failing to eat properly, and lack of exercise.

Four conditions account for 74 percent of American health care costs: cardiovascular disease, cancer, obesity, and diabetes. Cardiovascular disease is 80 percent preventable; cancer, 60 percent; and obesity, 90 percent, he said.

Larson showed maps of percentage of obesity in the United States growing through the decades, with some states recently approaching a 30 percent obesity rate. “We are fighting a losing battle right now,” he said.

Only a tiny percentage of Americans follow metrics for a healthy lifestyle. “That to me would be a growth industry,” Larson said. He cited the book Nudge by Richard Thaler, Ralph and Dorothy Keller Distinguished Service Professor of Behavioral Science and Economics, as one set of examples for creating incentives for healthy choices and behaviors.

Solutions in the health care industry will come from “disruptive innovation,” which generates simpler, more affordable products and services, he said, borrowing from Clayton Christensen, author of the The Innovator’s Dilemma.

Anne Wong, HCG cochair, said she liked how Larson “laid out different areas that reduce costs, look for quality, that are helping to make health care a more consumer-driven market. I think it’s interesting our health care reform discussions are all about how we can get everyone coverage,” said Wong, a second-year student in the Full-Time MBA Program, “and we’re not talking about how we get the costs down, how we make consumers more accountable. He talked about how he’s looking for businesses that do just that.”

                                                                                                                    — Mary Sue Penn

Read what experts said about information technology at the conference »