Episode summary
Why Your Medical Bill Is So High
Thoughts on the Market (Morgan Stanley)
· · 12 min · Hosts: Andrew Sheets, Mark Schmidt
Summary
Healthcare is a huge part of the U.S. economy, and the hosts focus on a basic contradiction: Americans feel medical care is expensive, yet official inflation data has often shown healthcare price growth running unusually low. Mark argues that the gap comes from how healthcare is measured and paid for, because prices are negotiated after care is delivered and are often hidden from the patient. That makes the inflation series lumpy and sometimes misleading.
The discussion also emphasizes that Americans are using more healthcare as the population ages, procedures shift to different settings, and hospitals face rising complexity and costs. Mark says hospitals are central to the system, with about $2 trillion spent in hospital settings, and that hospital billing, coding, and reimbursement negotiations can take a meaningful bite out of revenue. He adds that recent softness in healthcare inflation is likely "too good to be true."
Policy changes matter as well. The hosts discuss the end of enhanced Affordable Care Act subsidies, more uninsured Americans, and the possibility that changes in the insurance pool could push costs higher for those with private coverage. Mark concludes that hospitals have been absorbing rising costs through lower margins, but that current budget data and guidance point to firmer prices ahead.
Key takeaways
- Mark says U.S. healthcare spending is nearly $6 trillion, and a knee replacement can cost $25,000 in the United States versus $6,000 in France.
- The hosts argue official healthcare inflation understates real pressure because insurers and hospitals negotiate prices after care is delivered.
- Mark says hospital billing and reimbursement frictions can consume 2 to 4% of revenue, and 5 to 7% in especially complex cases.
- The discussion suggests hospital margins are shrinking, and that may eventually feed into firmer healthcare inflation data.
- The end of enhanced ACA subsidies and a larger uninsured population could change the risk pool and raise costs for privately insured patients.
Notable quotes
“Americans spend nearly $6 trillion on healthcare. That's more than the GDP of the entire country of Germany”
“The trouble is that the prices that health insurance companies pay hospitals, well, those are trade secrets”
“And that's why we think that the recent softness in healthcare inflation is actually too good to be true”
“The cost of talking to and ultimately getting reimbursement from your insurance company. That alone could be 2 to 4% of revenue”
“We dug into the finances for hundreds of not for-profit hospitals in the United States. They are facing higher costs and shrinking margins”
How the episode opens
Welcome to Thoughts on the Market. I'm Andrew Sheets, global head of fixed income research at Morgan Stanley. And I'm Mark Schmidt, head of municipal strategy at Morgan Stanley.
And today on the program, a discussion into one of the biggest mysteries in one of the biggest sectors of the economy. We're talking about healthcare costs. It's Friday, July 17th at 2 p.m.
in London and 9:00 a.m. in New York. So, we're talking today about healthcare, which represents roughly a fifth of the US economy, the bulk of job creation over the last several years.
And in my view, honestly, one of the biggest inflation paradoxes that we see in the market. On the one hand, the high cost of health care is taken as a given, and it's something that many Americans still struggle with financially. But if you look at the official inflation data in the US, health care costs have been lower than normal and that's been true now for a number of years.
So what's going on? How do we tie this together? And Mark, you just wrote a report that tries to do exactly that.
So what did you hope to accomplish with this report? You're absolutely right. It's hard to underline enough just how large healthcare is to the US economy overall.
Americans spend nearly $6 trillion on healthcare. That's more than the GDP of the entire country of Germany. And if we think about prices, Americans pay more.
A knee replacement, for example, costs $25,000 in the United States. That same procedure costs just $6,000 in France. Common heart treatments that would cost $3,000 in Germany or $10,000 in Australia cost $34,000 in the US.
It also matters for everyone's local community. Healthcare jobs have been growing twice as fast as the rate of job growth in the economy overall.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- healthcare costs
- hospital costs
- medical billing
Watch the episode
Watch “Why Your Medical Bill Is So High” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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