Healthcare Spending Keeps Increasing: That’s a Good Thing
It is often considered obvious that healthcare costs are out of control. Much of the current doldrums in the life sciences industry over the past few years can be attributed to that consensus, and the resulting political pressures to control costs. But what if we've been approaching this conversation all wrong? What if the steady increase in healthcare spending as a percentage of GDP—from about 6% in 1970 to nearly 18% today in the United States—isn't a problem to be solved, but an inevitable and beneficial evolution toward what economists call human capital investment?
The answer lies in recognizing that we're witnessing a fundamental shift from healthcare as emergency response to healthcare as life optimization. This isn't about making sick people pay more—it's about creating entirely new categories of value that didn't exist before medical innovation made them possible.
Before I go further, I would like to note that I’m not arguing that the system is great as it is, or that healthcare costs don’t land on some individuals and families in deeply unfair and unjust ways. There are tough decisions that need to be made about how we should pay for healthcare; I’m arguing that we should not be shy about saying that human health is worth investing in, even if that means a larger percentage of society’s spending power is dedicated to that pursuit.
Beyond Necessities and Luxuries: The Rise of Human Capital Investment
Classical economics divides consumption into necessities (things we need to survive) and luxuries (things we want but don't need). But this framework, developed when most people struggled to meet basic needs, fails to capture how prosperous societies actually behave. Today's healthcare spending patterns reveal a third category: human capital investment—goods and services that enhance human capability, extend productive lifespan, and optimize quality of life.
Human capital investment differs fundamentally from both traditional necessities and luxuries. When someone needs emergency surgery or treatment for acute illness, that's clearly a necessity. When someone chooses cosmetic procedures or concierge medicine primarily for convenience, that might be luxury spending. But when someone invests in preventive genomics, chronic disease management that extends functional years, or treatments that turn degenerative or life-threatening conditions into manageable ones, they're making human capital investments.
Consider the distinction: Emergency cardiac surgery saves a life that's immediately threatened. Statins and preventive cardiac care, however, represent human capital investment—they can extend life expectancy by years while maintaining quality of life. Studies show that effective statin therapy can lead to a gain of 6.6 months in male and 6.4 months in female life expectancy, while eliminating coronary heart disease mortality could extend average life expectancy by 3.1 years for men and 3.3 years for women.
The Innovation-Driven Value Equation
The crucial insight is that medical innovation doesn't just treat existing conditions better—it creates entirely new categories of value. Pharmaceutical innovation increased mean age at death in 26 high-income countries by 1.23 years between 2006 and 2016—representing 73% of the observed increase, with cost-effectiveness ratios of $35,817 per life-year gained in the U.S. and $13,904 in other high-income countries—both well below per capita GDP.
This is where the traditional healthcare cost debate misses the point. We're not asking people to pay more for the same outcomes they could have achieved in 1970. We're offering them outcomes that were impossible in 1970. Physicians specializing in major health conditions attribute 56% of post-diagnosis outcome improvements to pharmaceuticals and biopharmaceuticals, with diagnostics contributing another 20%.
This is part of a predictable pattern: as societies become wealthier, they allocate disproportionate shares of additional income to building up human capital. This isn't frivolous spending; it's rational economic behavior in response to new possibilities.
The Societal Dividend of Human Capital Investment
The individual benefits of human capital investment in health are obvious, but the societal returns may be even more significant. Chronic disease costs are expected to reach $47 trillion worldwide by 2030, but this figure assumes we continue managing these conditions with today's technologies rather than investing in innovations that prevent, delay, or fundamentally alter disease progression.
Consider diabetes management. Traditional necessity-based thinking focuses on keeping diabetics alive with insulin and basic care. Human capital investment approaches the problem differently: continuous glucose monitoring, advanced insulin delivery systems, and emerging therapies that preserve or restore beta cell function. These innovations don't just manage diabetes—they optimize metabolic function and prevent the cascade of complications that drive long-term costs.
The societal mathematics are compelling. Global life expectancy has increased by almost 23 years over the past 60 years, with an average annual gain of 0.5% or 3.7 months per person per year. But these gains aren't distributed evenly across all medical spending. The highest returns come from innovations that extend healthy lifespan, not just total lifespan.
Strategic Implications for Healthcare Companies
For healthcare companies, this framework demands a fundamental shift in positioning. Rather than defending against cost pressures, successful companies should be confidently articulating the value proposition of human capital investment.
First, distinguish your innovations clearly. Emergency treatments and life-saving interventions compete primarily on efficacy and access—these remain closer to necessities in economic terms. Human capital investments compete on optimization, prevention, and quality of life enhancement. A cancer drug that extends survival by months occupies a different economic category than interventions that prevent cancer development or maintain cognitive function during aging.
Second, measure and communicate the right outcomes. Human capital investments justify their cost through improvements in functional lifespan, productivity, and quality-adjusted outcomes. Companies must become sophisticated at measuring these benefits and translating them into economic terms that make sense to individual consumers and societal decision-makers.
Third, consider ways to move beyond “less bad” positioning. Throughout my career in healthcare, I’ve worked on brands that put a dent in some medical problem, that promised to make the person taking the drug or experiencing the intervention closer to “normal.” But illness, injury and aging are all part of the human experience, and often when we address them we are helping people get beyond their “normal” and letting them experience an improved life. The excitement around GLP-1 drugs, I’d propose, is not because they are letting people with the disease of obesity become less sick, but because they are helping normal people who struggle to lose weight to live healthier, more active and and more satisfying lives. We still struggle to communicate this, though brands in this space are clearly moving in that direction.
The Innovation Imperative: Creating New Categories of Value
The most successful healthcare companies of the next decade will be those that recognize which side of this divide their innovations occupy. Traditional pharmaceutical development often focuses on treating existing diseases more effectively. Human capital investment approaches the problem differently: How can we enhance human capability? How can we extend the years of productive, high-quality life? How can we prevent problems before they require emergency intervention?
This creates enormous opportunities across multiple domains. Preventive genomics, cognitive enhancement, metabolic optimization, immune system strengthening, and longevity interventions all represent categories where consumers will increasingly be willing to pay premium prices for superior outcomes—not because they're sick, but because they want to optimize their human potential.
Preparing for the Human Capital Investment Economy
The transition to human capital investment spending requires changing the societal conversation about the long-term value this type of healthcare spending delivers. Unlike emergency care, which creates urgency, or luxury care, which appeals to status, human capital investments require consumers to understand compound benefits over time.
Forward-thinking healthcare companies should prepare by:
Developing sophisticated outcomes measurement and transparent reporting. Human capital investments justify their cost through demonstrable improvements in function, longevity, and quality of life. Companies must become expert at measuring and communicating these benefits in ways that connect to individual and societal value—and make this data publicly available, not just accessible to payers.
Building evidence-based ROI models across disease categories. The CuraLinc Healthcare example demonstrates how rigorous methodology can produce compelling evidence. CuraLinc, which provides employee assistance programs and mental health services, conducted a peer-reviewed study analyzing over 166,000 cases that showed $5.39:1 returns—$3.24:1 from healthcare cost savings, $2.01:1 from restored productivity and avoided turnover costs, and $0.13:1 from organizational support. If mental health interventions can deliver such returns through improved workplace productivity and prevented complications, the same logic applies to cardiometabolic interventions, inflammatory disease management, and earlier cancer detection and intervention. Companies should proactively publish their economic outcomes data, following the systematic review evidence showing public health interventions delivering median returns of 14.3 to 1. This transparency becomes especially important given legitimate concerns about industry prioritizing profitable over optimal conditions—demonstrating genuine human capital returns will help separate value-creating innovations from purely profit-driven ones.
Defining endpoints that show impacts to human flourishing. I’ve been part of many brand teams where we felt like we were unable to make our best case for the drugs and devices we were promoting because the endpoints the clinical trials were powered for didn’t really tell the story of why the treatment mattered to patients. Work with KOLs early on in a product’s lifecycle to understand what data would help build the case.
The Economic Logic of Longer, Better Lives
This framework resolves the apparent contradiction in healthcare economics: How can spending continue to grow as a percentage of GDP while delivering value? The answer is that we're not spending more money on the same outcomes. We're investing in entirely new categories of human potential that weren't previously possible.
Medical interventions targeted at high-risk populations can generate life expectancy gains of five years or more, while treatments for established diseases can extend life by several months to as long as nine years. These aren't just medical statistics—they represent value creation at the most fundamental level.
The question for healthcare companies isn't whether spending will continue to grow. It will. The question is whether companies will position themselves as participants in human capital investment, or whether they'll remain trapped in the cost-containment conversation that characterizes necessity-based healthcare.
For companies willing to embrace this transition, the human capital investment economy represents perhaps the greatest growth opportunity of the next generation. The key insight is recognizing that when societies invest in extending and optimizing human life, they're not being extravagant—they're being rational. And rational societies, with growing wealth, will continue to invest more in the innovations that make longer, healthier, more productive lives possible.