Why Fixing Healthcare Could Save the US

US Spending Starting to Impact of Financial Picture

Yes, that’s a bold headline.  

Before you dismiss it, let’s break this down: the US economy, healthcare's role within it, and why reforming healthcare is crucial for the next generation.  

The Scale of the US Economy  

The US remains the largest economy in the world. In 2023, the US Gross Domestic Product (GDP) was estimated at $27.1 trillion, while Total Domestic Spending reached $29.6 trillion. In comparison, China’s economy stands at nearly $20 trillion, and Japan’s at $4.3 trillion.  

Healthcare in the US contributed $4.3 trillion to GDP (16%) and accounted for $5.2 trillion of Total Domestic Spending (17.6%). This makes US healthcare spending the highest in the world, reflecting its central role in both our economy and government budgets.  

GDP vs. Total Domestic Spending  

It’s important to understand the difference:  

1. GDP Perspective:Measures the economic value added from healthcare services while excluding administrative and insurance-related expenses.  

2. Total Spending Perspective: Includes all payments across the system, such as employer contributions and administrative costs.  

The Total Domestic Spending perspective reveals interesting breakdowns, as seen below:  

Personal Consumption Expenditures (PCE) - $18.5 trillion  

- Goods: $6.7 trillion  

  - Durable Goods (e.g., cars, furniture): $2.0 trillion  

  - Nondurable Goods (e.g., food, clothing): $4.7 trillion  

- Services: $11.8 trillion  

  - Healthcare: $4.5 trillion  

  - Housing & Utilities: $2.9 trillion  

  - Financial Services & Insurance: $1.6 trillion  

  - Recreation, Restaurants & Hotels: $2.8 trillion  

Business Investment - $4.6 trillion 

- Structures: $900 billion  

- Equipment: $1.6 trillion  

- Intellectual Property (e.g., software, R&D): $1.4 trillion  

- Inventory Changes: $700 billion  

Government Spending - $7.1 trillion  

- Federal Spending: $4.2 trillion  

  - Defense: $900 billion  

  - Non-Defense: $3.3 trillion (includes $1.6 trillion for healthcare)  

- State & Local Spending: $2.9 trillion  

Imports ($4.3 trillion) and exports ($3.1 trillion) round out the $29 trillion Total Domestic Spending estimate. 

The Healthcare Spending Breakdown  

Healthcare spending, at $5.2 trillion, exceeds US business investment ($4.6 trillion). A detailed look at its components reveals significant inefficiencies and areas ripe for optimization.  

Healthcare: A Government Debt Problem  

The US government’s fiscal challenges are exacerbated by healthcare spending. Over the past year, Treasury auctions have struggled to attract interest without raising yields, triggering a debt spiral. In March 2024, rising concerns about fiscal risk forced the Federal Reserve to cut rates twice (75 basis points total), yet rates remained high.  

The annual deficit of $1.9 trillion and a national debt of $36 trillion have created pressure to find budgetary solutions. Of the $7.1 trillion in government spending, $1.6 trillion (22%) is allocated to Medicare, Medicaid, and the VA—making healthcare the largest line item. 

Reducing healthcare costs by 30% through technology and efficiency improvements could save approximately $500 billion annually. This would significantly narrow the deficit and signal fiscal responsibility, likely reducing Treasury yields and interest costs.