Future Healthcare Costs

To pick up where we left of last week, this week we will look at the historical cost. But we will also quickly look at the potential development of future healthcare costs. We have been digging in historical data to see how healthcare costs developed over the past 30 years. Both in absolute terms and in relation with inflation. We hope this gives you and us a bit of an idea what to expect during FIRE in the coming years.

Rising Healthcare Costs

Healthcare costs are rising in pretty much every country around the world. Looking at the healthcare cost per citizen for various countries, you can see the immense burden on the governments (which we fund). But also on ourselves in the form insurance premiums, deductibles and other indirect healthcare cost. Let’s have a look at both.

Overall Healthcare Costs

The US is particularly high up when looking at healthcare costs per capita, but unfortunately the Netherlands is not that great either. Dutch healthcare costs have been increasing rapidly over the last years. The graph below shows the growth of healthcare cost over the period from 1980 to 2009 (EOCD health data). The Netherlands started out at about $850/year in 1980 and increased to $5.056/year in 2010 (second image).

Historical Healthcare Costs Healthcare Cost Per Capita in 2010

Based on an calculated average of 2.58% inflation in this same period (derived from the graph below), the healthcare cost should have been around $1.823/year in 2010 (instead of $5.056!). The actual average healthcare cost inflation was thus a staggering 6.1%. Almost two and a half times the average inflation, that’s high. On a positive note, investment returns (in the US at least) during the same period outpaced this increase in healthcare costs 🙂

Dutch Inflation 1980-2016
Dutch Inflation 1980-2016

Direct Healthcare Cost

Let’s look at how overall healthcare costs are broken down. Based on this report (prepared by the Dutch bureau of statics – text in Dutch), the breakdown is as follows:

The light blue is insurance premiums (mandatory insurance), the dark blue is deductibles, the purple is extra healthcare insurance (voluntary insurance). The two (yellow) green’s and orange are covered by taxes and social premiums (some taken from your paycheck/paid by your employer). We thus pay about a third of the overall healthcare costs directly via insurance premiums and deductibles. The remainder of the overall healthcare costs is paid indirectly via various taxes and social premiums.

Since the mandatory insurance commenced in 2006, premiums have increased from about €1027 per person per year (no deductible at that time) to €1541 per person per year (based on €98/month rate + deductible) in 2017. That is an 50% increase in 11 years, or 3.75% per year. For comparison purposes, the inflation between 2006-2017 was only 1.69%.

Future Costs?

As noted in last week’s post, healthcare insurance is mandatory in the Netherland. Current (2017) costs range between about €77 and €150 per month per person (subject to the coverage and deductible you want). That’s already a lot of money. If you are unlucky enough to land in a hospital, you can shelve out the deductible too as a bonus expense.

It should also be noted that insurance companies are currently not making much money on healthcare insurance (they are about at cost, sometimes even below). In short, it is not unlikely that premiums will rapidly rise in the coming years to remain profitable (or at least keep up with rising healthcare costs).

So, what are healthcare costs going to do? If per capita healthcare cost for the period between 1980 and 2010 are an indication, we could count on about 6% per year. Direct costs on the other hand increased by “only” 3.75% in the period from 2006 to 2014.  Not as bad as the overall per capita healthcare costs, but still well above inflation.

We think it is fair to say that healthcare costs will most likely outpace inflation with a significant margin. This is something to consider in your FI calculations. We are counting on our healthcare costs (premiums + out-of-pocket expenses) to go up with 5%/year going forward. We assume that overall healthcare cost increases will be limited by the current low inflation. But we also assume that premiums will go up rapidly in the coming years. Therefore a 5% increase seems reasonable, but time will tell….

Why Are Healthcare Costs Rising?

What is causing this rapid increase in healthcare cost? This will be a combination of many variables including an aging population, inefficiencies within the healthcare system and increasingly expensive medication.

But there is one component that appears to have a far larger impact than any other: lifestyle choices. We as humans have become so detached from nature that we have also stepped away from an active and healthy lifestyle. Have a look at the following two short videos (reference data to the used research is also provided):



Human nature

It’s becoming clearer through science that we ourselves are to blame for most of our chronic diseases (obesity, coronary heart disease (CHD), high blood pressure, cancer, inflammation, etc.). Simply by literally poisoning ourselves through diet and lack of exercise. Fact is that only a small minority of these chronic diseases actually have a genetic component to it. Albeit most people like to believe otherwise (so they can keep up destroying their lives by not changing the way they live).

Fortunately many chronic diseases actually can be prevented, arrested or even reversed through diet and lifestyle choices. The human body is actually able to selfheal under proper conditions, which has been confirmed by many scientific studies on for example diabetes (type 2) and CHD.

Unfortunately, it’s in the human nature to limit energy consumption in everything we do. We are particularly bad at getting off our asses when it comes to something important as our own health. Humans are also really good at putting a bandage on something. Rather than solving the underlying root cause of the problem. For example high blood pressure. Let ‘s take a pill, rather than change the poor diet with too much salt and too little exercise/veggies. Sigh….

It’s Primarily Us!

In conclusion, one of the main reasons why healthcare costs are becoming so expensive is us. It’s also only us that can regain an affordable healthcare system, simply by improving our lifestyles. Literally one step or one bite at a time. Food for thought? 😉

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  1. Ehm… there is a slight mistake in your post. About the CBS data: the light blue bar marked ‘Algemene middelen’ = the share of health care costs that comes out of the generic tax income of the government. I.e. the part that is state-funded, but not covered by specific social security premiums / taxes. Instead, it is funded from the pile of money the government gets in via (corporate) income taxes. The orange bar (nominale premie) is what you and everybody else pays themselves every month for the basic insurance. The dark green bar is the contribution your employer makes to your compulsory health insurance. For an explanation, see here: http://weblog.independer.nl/zorgverzekeringen/welke-premies-betaal-ik-voor-mijn-zorgverzekering-en-wie-bepaalt-de-hoogte/. AWBZ and Wlz (the light green bar) are the premiums you pay for long term care / disability assistance, they are collected by the tax authorities as a separate part of your taxes (i.e. separate from income tax). This leads to an interesting fact if you look at who has shouldered the rising health care cost in the past years. You can see that the sum collected through insurance premium payments and from income tax (algemene middelen) has increased much less than what’s paid by employers and collected via the long term care / disability assistance tax. I think this reflects the shift in what health care costs are used to finance: there are a lot more people who need AWBZ assistance (i.e. old people needing wheelchairs, home adaptations etc) or long term care. Also, you as an employee have been spared in comparison with the increased burden on employers. Of course, that won’t work indefinitely: if health care costs keep rising, employees will feel the bite at some point – but it is fair to assume that employers will still be forced to assume most of that burden. After all, they have much less votes :). So yeah, getting health care costs down is a good idea. As is investing in prevention. However, the Netherlands is already quite good at that – far better than the USA, for example. And a lot of health insurers have recently started looking a lot more at prevention, as it is good for their bottom line as well. But I think you are looking at the problem a bit too simplistically. By FAR the largest reason for the rising health care costs is simple demographics (an aging population) in combination with succesful prevention in the past decades – people are living a lot longer, and are dying of more expensive diseases. I hate to spoil your prevention party here, but it would probably be cheaper on the collective health insurance if everybody lived rather unhealthily and died of a heart attack at age 65. These days, people don’t die of heart disease anymore, so they are healthy enough to die of cancer – which is a LOT more expensive to treat, especially since treatments have become so effective that a lot of forms of cancer are now a chronic disease. Which is also a big factor in higher health care costs: expensive treatments that weren’t available before. And the fact that the cost of health care has risen faster than inflation. You can read a whole background CBS report on it here: https://www.cpb.nl/persbericht/3211095/zorguitgaven-blijven-stijgen. In which unhealthy lifestyles are not even mentioned as an explanatory factor (it would have surprised me if they had – lifestyles have gotten a lot more healthy for most people in recent years, not less healthy!). In fact, in the models the CBS has explored less healthy lifestyles lead to LOWER health care costs than would be expected when we extrapolate current trends – the ‘minder gezond’ scenario in the report. Basically due to people dying younger, and hence consuming less care, like I explained. So I agree that counting on increased insurance premiums and health care costs in FI is a sensible thing to do. However, if you want to make the maximum contribution to lowering our collective health care costs, it makes more sense to take up smoking, eat nothing but fries and die young of heart disease. With your lifestyle choices, you’re going to be one of those high life expectancy people who consume lots of chronic health care at the end of their life, and die of something expensive to treat like a rare form of cancer :). However, leading a healthy lifestyle is of course optimal if you yourself want to get the most out of the system you’re paying for anyway :).

    1. Hey JJNL, thanks for the critical review of the post and the essay of a comment 🙂 To be brutally honest, I did not have enough time to go through all the points in the CBS report in detail, so simplified it a bit for the post. The intend was more to show the overall increase in healthcare costs rather than discuss the details of where the money comes from. But thank you for providing these details! Learned quite a bit from it.
      As to prevention, did you know that up to 95% of Coronary Heart Decease and up to 65% of all cancers can be prevented by simple lifestyle changes? We are also cruising to a population that is already more than 50% obese! So to state that we have become healthier is untrue (sorry to crash your party here). When you look around the globe you see that populations become chronically ill once they step away from their traditional diets and start to eat the standard western diet. China and Japan are great examples where the numbers of cancers and coronary heart decease have skyrocketed over the past decades. For some background, I highly recommend you watch (and read) this https://nutritionfacts.org/video/how-not-to-die/ Gives you an indication of how sick we are as a species and why we are the primary cause of our healthcare cost disaster.

  2. I think healthcare is getting more expensive because there has not yet been a whole lot of automation in this field. From our food to our cloths, cars and electronics: the bulk of the work is done by machines. This has kept the price off all that stuff down. In a car factory a new machine replaces several workers. In a hospital a new machine ADDS several workers. And then there is the ever growing administration and adding of layers upon layers of bureaucracy … In part I think this is due to the nature of the profession: it is difficult to automate a process when sick people are involved. But part of it is the medical profession wanting to keep it’s moat. Does somebody really have to go to medical school to determine I have the flue? Or that yes, it is the season of pollen in the air so my allergies is acting up again so here you have your prescription that is identical to the one given for the last 20 years! Several companies are working at lab-on-a-chip solutions to diagnose illnesses. Get a chip that with a drop off blood can determine if you have the flue, measles, rubella, seasonal allergies flaring up again and automate the whole process … and health cost goes down with billions! Several tech companies are now searching for new solutions and I for one can not wait for some disruption to play out in this field too!

    1. Albeit you are partially correct, doctors are quite expensive and some of their tasks can easily be taken over by robotics and diagnostic tools. This would certainly reduce the cost of healthcare. But this is still putting a bandaid on a problem we have largely created ourselves. Fact is that diabetes type 2, coronairy heart decease (up to 95%!!!), certain cancers (up to 65-70%) and several other illnesses as primarily caused by our current livestyle. That is ridiculous! Prevention could reduce costs far more than any other change to the system.

  3. I also believe that lifestyle choices have a huge impact on health costs. If you only have to go to the dentist for annual checkups and that sort of thing, it could become cheaper.

    Now, if we only take our own responsibility as a community, the insurance costs will automatically dwindle.

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