The Upcoming Burst of the Healthcare Bubble
By Uncategorized

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Wall Street experts say there is a parasite in the US economy. The same people who predicted the financial crisis in 2008 have started to think that the next recession might be sooner than we would like. Many have concluded that the US healthcare system is a bubble created by bad government policies and its willingness to borrow loans at incredibly low interest rates. Whether these policies are soon corrected or the flow of credit stops, the bubble will eventually burst.

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Symptoms

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Healthcare spending has been a topic of conversation in the U.S. for over a decade because it continues to increase despite efforts to reduce waste and overall costs.

According to the Center for Medicare and Medicaid Services, the U.S annual spending on healthcare has reached $3.5 trillion (or $10,739 per person) which represents about 18% of the economy. The CMS has also projected that spending in the sector will continue to grow by an average of 5.6% annually during the next decade. Data predicts that not only prices will continue to rise, but the industry’s debt as well.

Experts claim that some factors making this bubble even bigger include an aging population, expensive treatments, and a society with high expectations for healthcare standards.

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Diagnosis

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It is possible to say that there are two main factors aggravating this situation. On one hand, the low-interest loans have been and will continue to be available to the U.S. government to support spending on healthcare goods and services. Through federal programs such as Medicare and Medicaid, it has distorted how healthcare is paid for and consumed. This has led to a misallocation of resources into healthcare, which will not continue to be supported once the government runs out of federal healthcare spending.

On the other hand, many believe that the “bad actors” in the healthcare system are drug companies that take common medicines and increase the price making themselves the middlemen that come in the way between patients and providers.

Soaring prices are forcing many families to choose between fixing Grandma’s hip or paying to have the car fixed. Some are even forced to pay medical bills instead with savings that were destined for retirement. Yearly medical costs for a family of four have increased 189% since 2002, going from $9,000 to $26,000.

John Burns, CEO of John Burns Real Estate Consulting claims that, “Healthcare companies have borrowed too much money, growing their debt faster than their revenue.”

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The cure?

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Those investors who bet that stocks will go down believe that this unsustainable “bubble” will be either gently deflate by government intervention or market forces will eventually pop it.

This is a complex scenario in which a (not very likely) solution would be to change pharmaceuticals’ regulations. Drug companies should not be allowed to charge a premium for drugs that many patients depend on.

The cost of delivering healthcare is almost twice as much in the U.S. as other countries and yet it has poorer outcomes. When the next recession occurs, people should not be surprised if it is precisely healthcare costs what drives it in the first place. And the worst part of this upcoming burst is that it is middle to lower class American families who will suffer the most.

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