Competing in the Knowledge Economy : The Knowledge Value Chain (KVC)

Last time we looked at where our health care funds in the US are spent.  At more than one-sixth of our GDP, it’s undeniably a huge factor in our financial lives.  Who pays for all this?  Ultimately, of course, we all do—but the mechanisms by which this happens may surprise you.

Since non-personal spending ($407 billion) is accounted for somewhat differently at the federal level, our focus here is just on the $2.2 trillion in Personal Health Care (PHC) spending in 2010.  A similar pie chart as in the previous post, but this time broken out by funding source, looks like this (figures in millions):

About one-third of PHC spending ($746 billion) is by private health insurance companies—Aetna, ‘the Blues’, Cigna, Humana, United, Wellpoint, and smaller companies.  Medicare, federal health insurance for the elderly, accounts for nearly a quarter of spending ($494 billion).  Medicaid, a joint federal-state program for the poor and disabled, pays for $372 billion.  Of that, about two-thirds is federal, one-third from state and local sources.

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Everyone knows health care is expensive, and is a significant part of our individual and collective budgets.  How expensive, exactly?  And how is that money spent?

In 2010 we in the US spent $2.6 trillion on health care. That’s 2.6 with twelve zeros behind it, or 2.6 million millions if (like me) you get lost in the zeros.  That comes to about $8,500 for each US resident, and more than $11,000 for each adult over age 18.

GDP Data (IMF as reported by Wikipedia)

This is nearly 18% of our $14.5 trillion Gross Domestic Product as a country.  For perspective, it’s larger than the entire US durable goods manufacturing sector ($2.3 trillion), which includes, among others, the computer industry ($377 billion) and the auto/truck industry ($360 billion).  If US health care were its own country, it would stand at number five in the world, behind Germany and just ahead of France.

Where does it go?  The following chart summarizes our outlays of funds (in millions):

Five of every six health care dollars are spent on Personal Health Care (PHC) — the professional direct care we actually ‘consume’ when we visit the doctor or take our medicine.  The other categories, together about one-sixth of health spending, represent much of the ‘overhead’ of health care.  Administration ($176 billion) includes state and local government program admistration expenditures, as well as the portion of private health insurance that does not directly pay for care.  Public Health activities like vaccinations and disease prevention make up another $82 billion.

Structures & Equipment ($100 billion) includes new building construction and capital equipment.  Research ($49 billion) represents non-profit and government activities like grants for medical research.

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