In my last write-up for Crush The Street, I discussed the alarming correlation between average healthcare expenditures in the U.S. versus demand for processed-food products. We all know – or at least we should know – that processed foods are at best not conducive for health, and at worst, are detrimental to it.
But in my article, I concluded that statistically, the two metrics share a 99% correlation. Such a high magnitude confirms beyond a shadow of a doubt that a significant relationship exists. In scientific projects, researchers often look for correlation coefficients of 60% as being the threshold that separates strong statistical relationships from the merely moderate.
Needless to say, a 99% correlation is as strong as you can get. Any stronger, and you’re probably analyzing the same data set twice.
The broader point, though, about my analysis is that financial incentives drive the healthcare industry’s supply chain. For instance, organically-grown foods are expensive, pushing American families to consume processed-food alternatives. These in turn make the population sick, and a lifestyle of artificial-food consumption leads to higher healthcare expenditures.
But mainstream critics may counter that healthcare and pharmaceutical technologies have substantially increased life expectancy. This is only a half-truth. Yes, life expectancy has increased, but improving pharmaceutical technologies is probably not the cause.
In the 1930s, the average life expectancy of Americans was 61.6 years. During this decade, the metric jumped to 78.7 years, or a 27.7% lift. That pharmaceutical proponents use this increase to justify their industry is understandable, but disingenuous.
Americans only spent $1.87 billion in healthcare services during the 1930s. Adjusted for inflation, this figure amounts to approximately $25.9 billion today. And in the current decade, we’re spending an astonishing $1.95 trillion for healthcare!
If we were to put this into investment terms, we’re spending a 7,429% premium for healthcare for a less than 28% increase in life expectancy. While life expectancy is correlated with healthcare expenditures (77.8% correlation coefficient), the extreme amount of spending required to spark an extra year of life indicates that pharmaceutical technologies has little or nothing to do with Americans living longer.
I’d call this a false correlation, or a correlation that appears connected, but are largely a result of coincidence. For instance, pharmaceutical technologies have improved dramatically at a time when life expectancy also increased, likely due to sanitation improvements.
Furthermore, we saw a dramatic boost in healthcare spending from the 1970s onwards. Nearly five decades ago, Americans spend $89 billion in healthcare services, or a non-inflation adjusted difference of nearly 2,100%. But during this time, life expectancy only improved less than 9%, or between 72.3 years versus today’s 78.7 years.
Are people living longer? Absolutely. But pharmaceutical technologies have nothing to do with this rise, even though the amount of money we pour into the industry suggests otherwise.