Healthcare Spend Is a Capital Allocation Problem

Executive Summary

Employers budget healthcare like rent.

But the national numbers show a system-level acceleration that directly impacts labor economics, margins, and enterprise risk.

CMS reports total U.S. health spending reached $4.9T in 2023 (17.6% of GDP), with private health insurance spending growing materially—this is not background noise, it is a macro force reshaping cost structures for every employer.

Why This Is Capital Allocation

Healthcare cost has the same characteristics as capital deployment:

• Large dollar amounts - often the second or third largest line item
• Multi-year commitments - decisions compound over time
• Vendor economics - incentive misalignment creates leakage
• Measurement gaps - lack of transparency prevents optimization
• Enterprise risk - volatility threatens EBITDA and valuation

Yet most companies manage healthcare through HR, not finance. That structural choice explains why it's treated as "overhead" instead of a capital allocation problem.

The National Context (CMS Data)

Total U.S. health spending: $4.9 trillion in 2023

• 17.6% of GDP
• Private health insurance spending grew faster than Medicare/Medicaid in recent years
• Prescription drug spending: significant and accelerating component

For employers, this translates to:

• Higher premiums
• More volatile renewals
• Less predictable cost structures
• Increased stop-loss attachment pressure

The macro trend is clear: healthcare inflation outpaces general inflation, and employers bear the direct impact through plan costs.

Governance Framing: Treat It Like Enterprise Risk

NIST's Cybersecurity Framework 2.0 explicitly elevates governance and positions risk management as a leadership responsibility—not just an IT function, but a board-level concern.

Healthcare economics deserves the same posture:

• Govern it - board-level visibility, not just HR updates
• Measure it - KPIs with evidence trails, not vendor summaries
• Control it - decision levers ranked by impact, not gut feel

This is not "benefits administration." This is enterprise risk management applied to capital deployment.

What "Evidence-Based" Means in This Context

Evidence-based healthcare cost management means:

1. Claims-level visibility - understand what's driving spend
2. Vendor accountability - measure performance against contract terms
3. Pharmacy economics - reconcile rebates, spreads, and guarantees
4. Stop-loss modeling - stress-test renewal scenarios
5. Decision modeling - quantify impact of plan design changes

Without this, you are optimizing based on narratives, not evidence.

The Kincaid IQ Connection

This is why Kincaid IQ exists: to convert healthcare spend from "mystery cost" into an evidence-based capital allocation problem you can actually manage.

Kincaid IQ treats healthcare like a financial system:

• Ingests pharmacy + medical claims
• Normalizes categories and reconciles economics
• Scores performance against defensible benchmarks
• Models decision impact (controls, plan design, funding strategy)
• Produces board-ready reporting with traceable inputs

The result: healthcare cost becomes governable capital allocation instead of uncontrolled overhead.

The CFO Lens

Great CFOs ask:

• "What % of healthcare spend is discretionary vs structural?"
• "How much volatility is baked into next year's renewal?"
• "Which vendor incentives conflict with our cost objectives?"
• "Can we defend our healthcare cost structure in diligence?"

If the answers aren't clear, healthcare isn't being managed like capital. It's being managed like expense—and that distinction matters.

The Board Responsibility

Boards should treat healthcare economics like they treat:

• Capex allocation - requires evidence and return modeling
• M&A diligence - demands transparency and risk assessment
• Vendor contracts - needs incentive alignment verification

If healthcare represents 8-12% of operating expense, it deserves the same governance rigor as any other material capital deployment.

Practical Next Steps

For Leadership:

1. Move healthcare cost visibility from HR to finance
2. Demand unit economics (PMPM by category)
3. Model stop-loss scenarios before renewal
4. Audit PBM contract performance quarterly
5. Track GLP-1 impact explicitly

For Boards:

1. Add healthcare cost KPI to board deck
2. Review vendor incentive structures annually
3. Require renewal defensibility documentation
4. Stress-test EBITDA impact of cost volatility

For Finance Teams:

1. Treat healthcare like capital allocation
2. Apply evidence-based governance
3. Build decision models, not narratives
4. Defend cost structure like you defend capex

Conclusion

Healthcare cost is not overhead. It is capital leakage that compounds every year you fail to govern it.

The companies that understand this early build defensible cost structures. Those that don't eventually explain surprises.

Treat healthcare spend like capital allocation, and you get capital allocation outcomes: transparency, control, and EBITDA defense.

Treat it like overhead, and you get overhead outcomes: volatility, surprises, and margin erosion.

The choice is operational, not philosophical.