Berkshire Hathaway 2003 Annual Meeting Audience Question # 11

Warren and Charlie on rising health costs in the United States

Warren Buffett:

On health care costs… the only company-wide managers meeting… and we had far fewer managers then… but we had a meeting of most of the then-smaller number of managers 15 or 20 years ago where we did talk about what the various companies were doing on health costs, because they were then the fastest increasing part of our cost structure.

And today, workers’ compensation costs would probably be… and some other insurance costs unrelated to health would be also… would, at least in the last couple of years, have moved up even more dramatically than health costs.

But health costs are huge for us. In many cases, you know, running 6- or $7,000 per employee, but moving up at a fast rate.
And you know, that is an inflationary part of the U.S. economy that we can’t solve and our employees can’t solve. And it becomes a big part of the kind of cost… it’s a raw material cost… we had higher energy costs in the first quarter.

But health costs are the ones that are going to just keep coming and coming, in my view, and I don’t have any great answers for it.

Charlie runs a hospital and knows a lot more about the health system than I do, so we’ll see what he has to say.

Charlie Munger:

Well, I would argue that the quality of the medical care delivered, including that from the pharmaceutical industry, has gone up enormously. And, of course, the cost has, too, but it’s a much richer country.

And I don’t think it’s crazy if the United States wants to spend 15 percent of GDP on health care. If it went to 16 or 17, I wouldn’t consider it the end of the world.

Eventually, of course, there would be a place where it wouldn’t be smart to spend so much.

Warren Buffett:

Do you think, if we’re spending 13 or 14 percent and other countries that seem to have fairly good systems are spending 7 or 8 percent, that we’re getting our money’s worth, relative to them?

Charlie Munger:

Well, certainly they’re getting more value per dollar out of their 7 percent than we’re getting out of our 15. But does that mean that it’s crazy for us to spend 15? I don’t know.

I would guess not. But I don’t see any sign from anything I see that it isn’t continuing to go up.

Warren Buffett:

It’s a… I don’t know how much we… we never aggregate figures around Berkshire from the various companies because it wouldn’t mean anything. But we spend a lot of money on health care.

And certain states, it’s far higher than others. It makes a lot of difference where you’re located.

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