Winning the Hardware Software Game Winning the Hardware-Software Game - 2nd Edition

Using Game Theory to Optimize the Pace of New Technology Adoption
  • How do you encourage speedier adoption of your product or service?
  • How do you increase the value your product or service creates for your customers?
  • How do you extract more of the value created by your product or service for yourself?

Read more...

Latest Comments

  • Anonymous said More
    Well written. Well constructed. Tuesday, 13 August 2019
  • Ron Giuntini said More
    As always a good read.
    I have always... Thursday, 25 January 2018

Factors Contributing to Rising Healthcare Expenditures Over Time

America’s Weight Problem: Increasing BMIs Over Time

Changes in Society Causing Increases in BMI over TIme

The Rise in Healthcare Expenditures is a Consequence of America’s Weight Problem

 

 

In my last two blog entries, I found that

Part 1

  • US healthcare expenditures have been increasing over time,
  • There seems to be a shift during the 1980s, in which annual personal expenditures on healthcare started increasing at a faster,
  • Healthcare expenditures for treating the top 20 medical conditions account for 75% of expenditures captured in surveys of healthcare expenditures for hospital inpatients, patients treated in physicians’ offices, and prescription medication, and
  • The increases in spending for the top 20 diseases are due mostly to increases in the number of people being treated for (chronic) diseases, rather than to increases in per-patient costs of treatment.

Part 2

  • Healthcare expenditures are concentrated, where the Top 5% of Users account for over half of total healthcare expenditures
  • the Bottom 95% of the population is paying roughly twice as much for healthcare services than they actually use, where the difference is going to subsidize the Top 5% of healthcare users, and the Bottom 70% of the population is paying seven times as much as they use, where the difference is going to subsidize the Top 30% of healthcare users.
  • The high-cost healthcare users are people with multiple, chronic conditions, including coronary artery disease, diabetes, congestive heart failure, and chronic obstructive pulmonary disease.
  • At least seven of the top ten medical conditions that account for the majority of healthcare spending can be at least partially prevented and/or mitigated by factors under the control of individuals, namely, weight control, eating habits, drinking (alcohol) habits, activity levels, and smoking status.

In this blog entry I examine how changes in society over time have led us to where we are now, with so many people suffering from chronic medical conditions.

Factors Contributing to Rising Healthcare Expenditures Over Time

In 2009 publication, “The Unsustainable Cost of Health Care,” the Social Security Advisory Board enumerates the factors contributing to the increasing in healthcare costs over time.

The major factors contributing to high and rapidly growing health care costs are reasonably well understood even as there is still some debate about the magnitude and relative importance of some of those factors. Some contribute to the high level of spending, others drive growth, and some play a role in both.

 

Technology

The most frequently cited cause of sustained growth of health care costs is the development, diffusion and increased use of new technology broadly defined as encompassing the use of any new procedures, drugs, or devices…. [where] Some new technologies allow for treatments of diseases where there were none before.

 

Insurance

More extensive health insurance coverage is a significant factor contributing to rising healthcare costs over time. In particular “increased coverage of a relatively large share of the population, mainly due to the introduction of Medicare, may explain half the increase in health care spending from 1950 to 1990.”

Kenneth E. Thorpe and David H. Howard, in “The Rise In Spending Among Medicare Beneficiaries: The Role of Chronic Disease Prevalence and Changes in Treatment Intensity” note that the increasing prevalence of medical insurance has potentially fostered the more aggressive treatment of patient diseases by physicians.

Previous work has shown that increases in treated disease prevalence during the 1990s account for a large share of the growth in spending by private health insurers. Several factors could account for the rise in the prevalence of treated disease. These include increases in the population prevalence of disease, more-aggressive treatment of asymptomatic or mildly symptomatic patients, better detection of disease, innovation and new technologies that allow the treatment of conditions previously left untreated, and declining mortality rates.

I would argue that it is the combination of three factors in particular that has played a significant role in increasing per-capita healthcare expenditures over time.

  • The increasing prevalence of private healthcare insurance (so people can “afford” to pay more for healthcare),
  • The greater availability of treatments associated with advances in medical technology (e.g. medications for high cholesterol, high blood pressure, diabetes, acid reflux, allergies, thyroid problems, etc.), and
  • The greater prevalence of treatment by population via healthcare insurance (more people are being treated for more different conditions).

 

Aging and Demographics

People are living longer [and being treated] with conditions that would have led to an earlier death only several decades ago.

 

Higher Prices of New Technologies

New technologies introduced into the marketplace have higher prices than those for existing treatments. Of course, “A new test may be twice as expensive, but may supply vastly superior diagnostic information, or information that did not exist previously.”

 

Higher Disposable Income

Rising personal income leads to higher spending on health care because medical care is a desired service.

 

Administrative Costs

…[F]rom 1995 to 2005, spending on administrative services grew by around 7 percent per year.

 

Medical Malpractice Liability

The direct effect of malpractice insurance premiums on health care spending is estimated to be rather small because those premiums represent only 1 to 2 percent of total health care expenditures… [however] The evidence that more costly malpractice liability increases overall spending due to the practice of defensive medicine is less clear… large segments of the provider community and many providers of health insurance are convinced that it is a significant problem. They are not convinced that the empirical studies are capturing the actual extent to which malpractice cases are driving medical practice in directions that increase costs over time.

 

America’s Weight Problem: Increasing BMIs Over Time

Definition of BMI

From the Centers for Disease Control and Prevention:

Body Mass Index (BMI) is a number calculated from a person's weight and height. BMI is a fairly reliable indicator of body fatness for most people. BMI does not measure body fat directly, but research has shown that BMI correlates to direct measures of body fat ... Additionally, BMI is an inexpensive and easy-to-perform method of screening for weight categories that may lead to health problems.

The formula for BMI is: weight (kg) / [height (m)]2 = 703.1 x weight (kg) / [height (m)]2

The standard weight status categories associated with BMI ranges for adults are shown in the following table.

BMI

Weight Status

Below 18.5

Underweight

18.5 – 24.9

Normal

25.0 – 29.9

Overweight

30.0 and Above

Obese

 

 

People Have Been Getting Heavier Over Time

In “Long-Term Trends in Health, Welfare, and Economic Growth in the United States,” Dora L. Costa and Richard H. Steckel present historical evidence that Americans’ BMIs have been increasing over time, as seen in Figure 1 reproduced below (the blue line at BMI = 25 is my addition).

Figure 1 shows that (i) BMIs tend to increase as people age, and (ii) dispersions in BMIs across the population tend to increase as people age. Costa and Steckel explain that latter observation as follows:

…why differences in BI by occupational class were small at young ages and large at old ages can be explained by a wide array of factors. These include the accumulated effects of work intensity and of working conditions, early in life conditions that led to chronic conditions that only became evident at older ages, and the accumulated effects of differences in nutritional intakes and physical activity.

Note also that the largest increases in BMI since the mid 1800s occurred in the two decades after WWII.

 

People in the Higher Deciles Are Getting Heavier Faster

In their 2010 study, “The Evolution of BMI Values of US Adults: 1882-1986,” John Komlos and Marek Brabec find that people in the higher BMI deciles (i.e., heavier people) have been getting heavier at a faster rate than people in the lower BMI deciles (i.e., lighter people) (see Figure 2).

While Figure 2 displays BMIs only of white males, the authors note that the same general pattern was also found in BMIs of white females and of both black males and females. The authors describe the pattern as follows:

We find that a persistent increase in BMI values was already underway among the birth cohorts of the turn of the 20th century … The upper deciles rotate upwards as the ridges of a fan while the lower ones remained essentially unchanged ... This implies that the distribution became extremely skewed to the right. In other words the lower part of the distribution hardly increased at all but the upper part of the distribution increased more and more rapidly over time.

When examining the rate of change in BMI, as seen in Figure 3, Komlos and Brabec note the increasing asymmetry (“skewness”) across the BMI deciles over time:

A key finding is the rapid acceleration in BMI values among the cohorts born right after World War I among white men and women. This was accompanied by a marked divergence between the lower and upper deciles leading to extreme skewness of the BMI distribution. The acceleration was followed by a decelerating phase during the Great Depression. There was a second phase of rapid upswing in BMI deciles after World War II. This time all four ethnic/gender groups participated in the upswing.

Unfortunately, Komlos and Brabec’s study ended in 1980, so we cannot see how the shift that occurred during the 1980s would look in comparsion to BMIs in the previous periods.

 

Changes in Society Causing Increases in BMIs over Time

In the previous section, I established that since at least the late 1800s, Americans have generally been getting heavier over time, especially those people at the mid to upper weight deciles of the population. This section examines the factors that have contributed to this trend.

A person’s weight is determined by two primary factors: (i) the number (and type) of calories he consumes, and (ii) the amount of physical activity in which he engages. So, the obvious source of weight increases over time would be factors either that (i) increased the number of calories Americans have been consuming over time, and/or (ii) decreased the amount of physical activity in which people have been engaging.

A review of the literature on factors that have contributed to increases in Americans’ BMIs over time suggest the primary factors include both decreases in the amount of physical activity undertaken by the average American, together with increases in the amount of calories being consumed.

 

Migration from Rural to Urban

There has been a migration over time of large portions of the population from rural into urban areas (see Figure 4).

Figure 4

 

Coincident with this migration is a shift in large portions of the population out of farming and more labor-intensive modes of employment – farming and the production of goods – towards less labor-intensive modes of employment – the production of services (see, for example, Darius Lakdawalla and Tomas Philipson, “The Growth of Obesity and Technological Change: A Theoretical and Empirical Examination” and Dora L. Costa and Richard H. Steckel, “Long-Term Trends in Health, Welfare, and Economic Growth in the United States”) (see Figure 5).

Figure 5

 

Labor Saving Technologies

There have been on-going introductions into society of new technologies that decrease the amount of physical activity required to accomplish tasks (see, for example, Tomas J. Philipson and Richard A. Posner, “The Long-Run Growth in Obesity as a Function of Technological Change” and Robert W. Jeffrey and Jennifer Utter, “The Changing Environment and Population Obsity in the United States”). In particular,

    • Transportation: The advent of the automobile and other forms of transportation technologies has decreased the physical activity required to move people or goods from one location to another.
    • Communications: The advent of communications technologies, including radio, TV, telephones, and the Internet, has decreased the physical activity required to move information from one location to another. In particular, Komlos and Brabec observe

Noteworthy … is that the timing of the first accelerating phase after World War I [regarding increases in BMIs] among whites coincided with the spread of radios and automobiles, while the timing of the second accelerating phase of the 1950s cohorts among both blacks and whites coincided perfectly with the spread of television viewing and the spread of fast food consumption.

    • Other: Other labor-saving technologies, such as production machinery and household appliances have decreased the physical activity required for many other activities.

 

Increasing Availability of Cheap, Processed Foods

The introduction of new technologies introduced into the agricultural and food processing sectors has led to a dramatic decrease in the relative price of food over time. Figure 6 shows that the personal expenditures on food decreased from about 36 – 37% of income during the WWII years to about 15% of income today.

Figure 6

 

Not only did food become cheaper over time, but prepared foods have become increasingly available in vending machines, restaurants, grocery stores, and convenience stores.

Philipson and Posner describe theses trends in food prices and availability succinctly:

We have pointed out that technological change in agriculture led to the reduction in food prices that made population-wide obesity even feasible, let alone desirable. In addition, market production of food has increasingly become a substitute for household production (Haines et al., 1992) signaling a change in the share of diets prepared, and not only produced, by the market through restaurant. It is often argued that fast food is responsible for the rise in obesity. But we believe that fast food is a consequence of technological change, rather than an independent explanation of obesity.

Finally, the increasing saturation of marketing through mass media has played a large role in increasing demand for (processed) foods over time.

 

Working Women

Traditionally, the predominant role of married women in society has been that of homemakers, part of which entailed wives and mothers preparing meals at home for spouses and children. However, over time, the role of married women in society has changed, where more women have entered the workforce over time. Figure 7 shows that the percentage of married women in the workforce increased during the post WWII period, from about 25% during the late 1940s and appears to have leveled off at a little over 60% as of the turn of the century.

Figure 7

These new career women have had less time at home to prepare meals for spouses and children, and the increasing availability of pre-prepared foods has been a convenient substitute for cooking at home (see, for example, Komlos and Brabec).

 

More Leisure Time and Leisure Activities More Sedentary

Due to a combination of

(i) an increasing availability and use of labor saving technologies over time, and

(ii) a shift in large portions of the population away from employment in agriculture and manufacturing and into the production of services over time,

people have found themselves with increasing amounts of leisure time, and they have tended to spend their leisure time undertaking more passive activities (see, for example, Darius Lakdawalla and Tomas Philipson, “The Growth of Obesity and Technological Change: A Theoretical and Empirical Examination” and Barry M. Popkin, “Urbanization and the Nutrition Transition”).

Barry M. Popkin, in “Urbanization and the Nutrition Transition” summarizes the trends discussed in this section.

This “nutrition transition”—a term used to describe shifts in diet, physical activity, health, and nutrition—can be traced to higher incomes, the influence of mass media and food marketing, and a range of changes in the nature of work and leisure.

Where a person stands in the nutrition transition depends on how far that person has moved away from a traditional diet and toward a diet common in the West, with all the accompanying changes in physical activity and body composition. According to this qualitative measure of transition, urban areas throughout the developing world are much further along in the process than rural areas.

 

Society’s Accommodations of Heavier People

There is a final contribution to the trend of increasing BMIs over time that is not explicitly noted in the literature, which I would call society’s accommodation of a heavier population. As a critical mass of heavier people in the population has been reached, there have been several ecological conditions with respect to society that have facilitated people’s abilities to “live large”, so to speak.

Noted in the literature is the fact that portion sizes have been growing over time (see for example, Samara Joy Nielsen and Barry M. Popkin, “Patterns and Trends in Food Portion Sizes, 1977-1998” and Lisa R. Young, PhD, RD, and Marion Nestle, PhD, MPH, “The Contribution of Expanding Portion Sizes to the US Obesity Epidemic”). Larger portion sizes accommodate people’s abilities to eat more food without having to explicitly order multiple traditional-sized portions of food.

Another factor is the increasing availability of off-the-rack clothing in larger sizes, not to mention the use of vanity sizing by clothing manufacturers to appease womens’ egos. In “A History of Standard Clothing Sizes: How sizes developed and why the same size does not always fit”, the vanity sizing is described as follows.

Many designers were led away from the standardized sizing system by what is now know as vanity sizing, or making larger garments and labeling them with smaller sizes. American men and women have been getting progressively larger, and women’s shapes have changed from what was once an hourglass figure to more of a pear shape… According to standard size measurements used in (CS)215-58, the average 155-pound woman should be wearing a size 16, but is more likely buying a vanity sized 10.

Transitioning to vanity sizing has been profitable for some companies. One publication reported that women are willing to spend more for a smaller-sized garment than for a similar piece of a larger size number… The extra cost of the "smaller" garment is said to pay for the magical feeling women experience from buying smaller-sized clothing.

Finally, I would note that while there is still a stigma attached to being heavy, there is less of a psychological burden to being heavy when so many other people in the population are also heavy.

 

The Rise in Healthcare Expenditures is a Consequence of America’s Weight Problem

In the first section of this blog entry, I discussed various factors contributing to the increasing expenditures on healthcare over time in the US. In particular, I stated that I believe that it is the combination of three factors in particular that has played a significant role in increasing per-capita healthcare expenditures over time.

  • The increasing prevalence of private healthcare insurance (so people can “afford” to pay more for healthcare),
  • The greater availability of treatments associated with advances in medical technology (e.g. medications for high cholesterol, high blood pressure, diabetes, acid reflux, allergies, thyroid problems, etc.), and
  • The greater prevalence of treatment by population via healthcare insurance (more people are being treated for more different conditions).

In the second section of this blog entry, I established that American’s have been getting heavier over time, to the point that a significant portion of the population is now either overweight or obese from a medical standpoint.

In the third section, I described various changes in society over time that have led American to be physically less active, while also consuming more calories, leading to the current situation in which a significant portion of the population is overweight.

In this section I recall information from Part 2 of this blog series in which I noted that

So at least seven of the top ten medical conditions that account for the majority of healthcare spending can be at least partially prevented and/or mitigated by factors under the control of individuals, namely, weight control, eating habits, drinking (alcohol) habits, activity levels, and smoking status.

The three remaining of the top 10 medical conditions with regard to healthcare expenditures are trauma, mental disorders, and back problems. All three of these conditions also contain elements that can be prevented or mitigated by factors under the control of individuals.

So what we have is that a big reason why healthcare costs are so high and rising so quickly is a direct result of the fact that people have been getting heavier over time and that now so many people are either overweight or obese.

More Blogs

Cannabis Science and Technology Finally Got Hitched!

03-10-2019 - Hits:321 - Ruth Fisher - avatar Ruth Fisher

The Separate Worlds of Science and Technology Throughout most of human history, science and technology existed within completely separate realms of society. Science, or natural philosophy, fell within the realm of the upper ranks of society. Natural philosophers were “uncommitted to any program of useful knowledge,” developing “abstract speculations about the...

Read more

The Growth and Development Paradox

24-09-2019 - Hits:499 - Ruth Fisher - avatar Ruth Fisher

Wheat yields in the UK hovered around ½ tonne per hectare for hundreds of years (see Figure 1). Imagine being able to generate no more wheat per unit of land than your ancestors who had lived 100 generations before you had been able to grow! The introduction of crop rotation...

Read more

The Four Social Forces That Shape Our Actions

23-09-2019 - Hits:468 - Ruth Fisher - avatar Ruth Fisher

Our desire to fulfill our wants and needs motivates us to act. A lot has been written about what, exactly, constitute our wants and needs as human beings. Examples include: Food, clothing and shelter Health, safety, and protection Self-preservation, sex, and procreation Social status, competition, acquisition, rivalry, power Love, belonging, connection Self-expression, creativity, contribution, independence I tend to...

Read more

What Promotes Social Well-Being?

22-09-2019 - Hits:343 - Ruth Fisher - avatar Ruth Fisher

It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was...

Read more

Hurdles to Mainstream Adoption of Medical Cannabis

21-09-2019 - Hits:162 - Ruth Fisher - avatar Ruth Fisher

Based on the incentives facing different players in the US medical cannabis market, I believe the market will not achieve mainstream adoption unless or until the US overcomes several hurdles: (i) the classification of cannabis as a Schedule I drug, (ii) cannabis’s lack of FDA approval, (iii) the lack of...

Read more

Attracting Mainstream Consumers to Medical Cannabis

19-09-2019 - Hits:176 - Ruth Fisher - avatar Ruth Fisher

The US medical cannabis market is currently in its early stages of adoption: the market has gained some penetration, but not enough to warrant adoption by the early majority, that is, more mainstream users. My book, Winning the Hardware-Software Game, describes the technology adoption lifecycle in detail. A brief summary...

Read more

Being Healthy Shouldn’t Be This Hard

31-08-2019 - Hits:291 - Ruth Fisher - avatar Ruth Fisher

In 2018, Americans spent $3.67 Trillion on healthcare, amounting to 19.5% of GDP, up from 5.2% of GDP in 1960. It might not be such a bitter pill if Americans were becoming correspondingly healthier over time. But we’re not. Everyone knows that despite our hefty increases in spending over the...

Read more

Intangibles and Context Will Increasingly Differentiate Winners from Losers

30-08-2019 - Hits:147 - Ruth Fisher - avatar Ruth Fisher

You’re hungry and ready to eat. What’s for lunch? What you choose to eat depends on your environment, that is, the context in which your desire to eat occurs: Where you are, what’s available nearby, what you like to eat, how much money you have, how hungry you are, and so...

Read more