As pundits continue to debate wether the US economy is emerging from recession, most are missing more important fundamental economic issues. Newsweek's recent article by Niall Ferguson, "Chimerica is Headed for Divorce", raises more relevant questions and serves as an interesting reflection on the consumer - producer relationship that has emerged between the US and China. Ferguson, the Harvard professor and author of The Ascent of Money , a book and PBS series, opines:
It's a bit like one of those marriages between a compulsive saver and a chronic spender. Such partnerships can work for a certain period of time, but eventually the penny-pincher gets disillusioned with the spendthrift. Every time Chinese officials express concern about U.S. fiscal or monetary policy, it reminds me of one of those domestic tiffs in which the saver says to the spender: "You maxed out on the credit cards once too often, honey."
Let's look at the numbers. China's holdings of U.S. Treasuries rose to $801.5 billion in May, an increase of 5 percent from $763.5 billion in April. Call it $40 billion a month. And let's imagine the Chinese do that every month through this fiscal year. That would be a credit line to the U.S. government of $480 billion. Given that the total deficit is forecast to be about $2 trillion, that means the Chinese may finance less than a quarter of -total federal-government borrowing—whereas a few years ago they were financing virtually the whole deficit.
Clearly the financing of US spending by the Chinese will be ending; its unsustainable and increasingly not in the best interest of the Chinese. Furthermore, the possibility of the US garnering political will to tackle its fiscal indulgences is unrealistic. What are the implications? In the long run the rise and fall of empires follows the rise and fall of their economies. Watch Niall below describe some of the implications of these macro trends as we enter a new age of geopolitical considerations. No reserve currency last forever as this historian points out and the implications for declines in US standards of living among other important considerations are worth careful thought. Long run, interest rates will rise, purchasing power will decline and inflation will emerge to resolve the disequilibrium that has been existing for some time.
The Centers for Disease Control and Prevention recently reported the direct annual medical costs of obesity in the U.S. at $147 billion - twice the amount since CDC first considered costs in 1998 and $50 billion more than is spent fighting cancer each year. Half of these estimated costs are currently paid by the government through Medicare and Medicaid. The largest increases in spending are attributable to obesity with $303.1 billion spent in 2006, nearly double the $166.7 billion spent in 2001. This unsustainable cost is truly breathtaking. In 1946, seven times as much was spent on food, beverages, and tobacco as on medical care. Fifty years later, more was spent on medical care than on food, beverages, and tobacco combined. Hence the current political debate on how to avoid our health care system bankrupting the U.S.
Fitness and wellness professionals know that three fourths of chronic disease costs relate to poor lifestyle choices. Regular exercise, avoidance of tobacco and an appropriate diet are at the heart of prevention. If quality lifestyle choices were adopted by all tomorrow we would immediately begin to get at the fundamental problem : in 2008 an average of $7,900 per person in the US or 17% of GDP was spent on “health care”. We need to impact the demand side of the equation.
Yet with all the prevention emphasis and dollars invested by various government and non-government agencies and organizations things have not improved , they’ve only gotten worse. Interestingly a solution that would make a significant impact to this complex challenge exists: with over 30,000 fitness facilities and tens of thousands of certified fitness professionals in the U.S., there is an industry prepared to train, motivate, support and measure outcomes for the obese and promote quality lifestyle choices. Basic physical examinations to measure weight, blood pressure, resting heart rate, cholesterol, and height could be combined with the application of wellness and fitness principals by for profit and not for profit professionals and facilities to impact a huge swath of the obese population. Adding inexpensive technologies like those offered by Polar or Fitlinxx, for example, would further enable individual participants and service provider professionals to track activity and outcomes via web based platforms.
There is some encouragement that this type of solution and thinking is gaining momentum. The Personal Health Investment Today Act (H.R. 2105) is an example of legislation that would enable allocation of medical savings accounts to fitness and wellness investments by individuals and the Healthy Workforce Act (H.R. 1897, S. 803) would amend the Internal Revenue Code to provide a credit for 50 percent of the costs employers would incur in implementing such wellness programs for their employees. These initiatives are designed to encourage reliance on the fitness industry to become a larger part of the solution.
Exercise is medicine as Robert Sallis, chair of Exercise is Medicine, pointed out in his recent letter to the American College of Sports Medicine. Dr. Sallis made an important distinction in his letter: prevention involves lifestyle changes not just diagnosis. He asks this about prevention, “Does it save money in the long run, or is it an expensive indulgence with too little benefit to justify the up-front cost? Answer: It depends. While many diagnostics, such as colonoscopies and mammograms, save lives and head off expensive treatment regimens, some may be unneeded. Sound medical judgment and appropriate guidelines are required. But, everyone can practice prevention in the form of healthy lifestyles, and it doesn’t cost a dime.” Sallis identified a key policy problem: the traditional medical “system” looks at and delivers prevention in the form of pharmaceuticals and procedures and not lifestyle design. The health care system is simply ill equipped to deliver basic wellness prevention affordably and cost effectively, while the fitness industry is prepared to: particularly the medical fitness industry.
In addition to the wellness solution that would enable people to benefit from the U.S. fitness industry, a new pricing mechanism for insurance coverage must be created to reward people who improve their health via lifestyle modifications while penalizing those who do not. A wellness program would also serve as a means to hold individuals to account for their choices and outcomes. Much like automobile insurance, there must be an allocation of costs to risk around fundamental measures. We must incentivize people to live healthy lives.
Putting the important matter of price and risk aside, the manner with which various organizations and constituents are “promoting” the “prevention” solution gives one pause and requires close evaluation. Consider this: today the total sums paid in the U.S. for memberships in health clubs is only around $20 Billion a year. That is less than one penny for every dollar spent in medical treatment. Therefore, one might certainly scratch their head at some proposals being considered under the flag of “prevention”. For example, a current draft Senate bill would provide up to $10 billion annually for a "prevention and public health investment fund"; largely infrastructure projects like bike paths, sidewalks, farmers' markets and other community interventions meant to curb the chronic and costly condition of obesity. Bike paths are great for communities, but when considering cost benefit is that what we need to be doing ? None of these funds requires demonstrated outcomes or is directed to a real wellness solution. These types of initiatives will not impact our problem and we need that impact to start now.
The annual direct cost to the government today for obesity is around $73 billion and its growing by over $14 billion a year. Couple the existing $10 billion in legislative proposals which will not deliver near term results and your talking about annual costs to the federal government of nearly $100 Billion a year. This is five times the revenues for the entire fitness industry. With approximately 50 Million obese adults that amounts to nearly $2,000 a year in direct government expenditures for each of these adults. The fitness industry would be a much better investment of these dollars to provide results that could make a huge, real and lasting impact.
As Noble Prize and free market economist Milton Friedman wrote in his 2001 paper How to Cure Health Care; “Our mixed system has many advantages in accessibility and quality of medical care, but it has produced a higher level of cost than would result from either wholly individual choice or wholly collective choice.” Milton was right, we spend too much. However, to do something about it we need to admit past attempts have failed and do the obvious. Prevention through lifestyle modifications that embrace fitness is essential and aligning the resources of the fitness industry to this strategy is a thoughtful solution that would work.
When coupled with risk reward paradigms in insurance, be it a single payer or the extant system, perhaps we could finally impact the problem we all want to change. If you are interested in supporting IHRSA's Campaign for a Healthier America and including exercise as prevention as part of health care reform, visit www.ihrsa.org/campaign.As the video below suggests, we've been having the same discussion for 40 years. Its time to do something about it.
Most significant challenges deserve objective analysis based on economic principals. Supply and demand being at the core. Things costing to much ? The explaination is usually a lack of competition or artifical restrictions among alternative options for buyers. Not enough supply ? Barriers to entry , government restrictions or diminishing prospects for profit can be at the root. Interestingly, when it comes to health care what people pay for and what they get is at the core of the problem and private insurance intermediaries are profiting from market inefficiencies. In the end the private for profit insurance industry delivers no real or sustained value and this is central to the health care crisis because they slice the pie with the main objective being their profits, not a uniform allocation of risk and costs among populations to make the cost for all lower. This runs counter to the purpose of insurance, particular for a risk that we all are subjected to, our health. This is why the public option being debated in Congress isn't the answer to impact costs and coverage; what is is universal coverage that eliminates private insurance.
Recently Wendell Potter shared his views as a high ranking former insurance executive. During Congressional hearings in June 2009 he reminded us all that health insurance executives had assured Congress in 1993 they would work to secure universal medical coverage and end denials of coverage to people with pre-existing conditions. Then they moved heaven and earth to kill reform. They've made the same promises now, Potter observed. But they're in an even better position to throttle reform. Mergers and acquisitions have turned the industry into a cartel of huge corporations.
"The industry is bigger, richer and stronger, and it has a much tighter grip on our healthcare system," he said. "The last thing they want is a government program set up as their competition."
See Potter's interview on Bill Moyers Journal wherein he describes the realities of the health care insurance business.
The firms take billions of dollars out of the U.S. healthcare wallet as profits, while imposing enormous administrative costs on doctors, hospitals, employers and patients. They've introduced complexity into the system at every level. Your doctor has to fight them to get approval for the treatment he or she thinks is best for you. Your hospital has to fight them for approval for every day you're laid up. Then they have to fight them to get their bills paid, and you do too.
People should remember what the health care nightmare in the U.S. really involves. Insurers are part of the problem, not the solution. That observation is nothing but straight forward economics.
Google's head, Eric Schmidt, recently shared his views on a series of topics at the Aspen Ideas Festival. He addressed how "old" institutions are inefficient and in particular governments. His solution is transparency because as he puts it, "many bureaucrats know what they are doing is not effective". Schmidt goes on to question why the US attracts foreign students and then kicks them out, a significant impediment to retaining the brightest minds from around the world. Finally, Eric touts the excitement that instant translations tools and photo identification being created by Google will offer. Check out this brief 6 minute interview to learn more.
Gregory Mantell's interview of Alvin Toffler relating to he and his wife's latest book Revolutionary Wealth addresses a series of notions including the intangible nature of knowledge and its reprecussions to wealth and his prediction of a series of "Institutional Katrinas", where businesses, governments and educational systems will catastrohpically fail in delivering on promises. Watch the interview.
