According to the last census data in 2011 the average income in the United States for a family of 4 was $50,054. This is at levels not seen since 1995. We have had no income growth in almost 20 years. Last year the medical cost for the average family of 4 in this country was $22,030 according to the Milliman Medical Index. If my math is correct, Medical cost is 44% of our income. Under the Affordable Care Act (Obama Care) the cost of insurance will be $20,000 for a family of four. This does not include co pays, prescription drugs, or deductibles.
If that doesn't register, maybe this will. The average family of 4 spends $8,388 per year on groceries, $2,912 on gas, and $12,000 on rent or mortgages. Taking the standard deduction with 4 exemptions your federal tax liability is $1,504. You know, I am not fond of taking a cold shower in the dark --- which is another way of saying you have a utility cost to be paid. Utilities electric and phone cost on average $3,600 per year. The average car payment in America is $475 per month, or $5,700 per year.
You know food, shelter and water are the most important things for survival in any society. Without them you have revolution. These items are going to be covered first and foremost. My guess is if you have a shortfall as seen above Medical Cost will be cut. Our elderly will eat before they buy their meds.
My entire discussion above is the end result of the medical issues facing our country today. These issues are caused by a medical system totally broke and is the biggest crisis facing this country today. The sad thing is, as I've said in my title, it is truly a crisis by design.
One of my favorite investors of all time has said "invest in those companies that have monopolistic characteristics" --- that was Warren Buffet. I believe at that time he used his position in Coca Cola(NYSE:KO) as an example. The medical system for many years has clearly been a good example of a monopoly somewhat like Coca Cola except this house of cards is coming down.
You know, the Federal Trade Commission broke up AT&T (NYSE:T) for this very reason. General Motors (NYSE:GM) went bankrupt because of over powering unions drove up the cost to the point they were not competitive. I think the same thing is going to happen to medicine.
Competition brought down GM. Medicine as of today has no competition. The AMA is no different than the united auto workers. Until the day comes that true transparency is put into practice in the medical communities we will continue to spend 44% of our income on healthcare.
We should be able to shop for a Doctor or a medical facility as if we were shopping for a pair of shoes. We should have full disclosure right up front. No consults should be given without a clear explanation of why and the cost associated with that. Imagine having a choice on who was consulted assuming it was necessary. Why is there not a price list for a procedure, or why are the doctors not compensated on outcomes? Whatever happened to practices built on wellness? HMO's were actually a good idea.
Why is it that Medicare payments are 1/3 of actual invoices billed. This makes no business sense to me. The medical practices went many years billing whatever they wanted and got real use to setting their own pricing structure. I have no problem with that in a competitive environment. There simply is no competition, the AMA saw to that.
I have built business models for medical practices and in that model I have priced in 1/3 of all receivables billed to Medicare. I don't know of another business that practice is done. I am not saying at sometimes you don't have to write down bad receivables. In a medical practice you book it as a bad receivable on the front end. Huh! How crazy is that? Better yet why and how did this happen?
It is a combination of greed and no business training in a competitive environment. They take that Medicare payment and bill the rest at a much higher price. They better get used to that Medicare payment because 74 million people (Baby Boomer) are about to enter Medicare.
Furthermore with transparency you will see a consumer driven medical system that will uncover the inefficiencies of our medical system today and drive down the cost of medicine bringing down that house of cards and maybe then we will have a consumer driven Affordable Care Act that needs not to be over 2000 pages. Hopefully then half our income will not be going out to healthcare.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.