Pay the People Who Do Things

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Issue Areas

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Everywhere you look, it seems like everything costs more and works less efficiently. Planes even seem to fall apart in the sky. If you look at education and healthcare, you’ll see two glaring examples of industries that are spending more than ever, yet results are increasingly worse. So where is all the money going, and how can it be allocated more effectively?

In 2023, just over half of the more than $800 billion that US states spent on education went to instruction, and even worse, only about 30 percent of this actually went to the instructors themselves. The other about 70 percent went to administrative and operational expenditures. Colorado is not unusual, in fact, a 2022 report showed that, in the 14 years prior, “…Colorado’s funding per student increased by 47% while the average teacher salary only rose by 27%.” Even worse, “…The share of funding being spent on instruction, including teacher salaries, decreased statewide from 45.4% in 2011 to 39.1% in 2021, while the share going toward operations and administration has increased.” So, where is all of the money going if not towards teacher pay and how can we lower the administrative and operational expenditures or allocate the money more effectively?

Likewise, in 2022, the U.S. spent $4.5 trillion on healthcare. But where did this huge sum of money go?  Hospital care and physician and clinical services accounted for 50 percent of the total spend, while other items, such as drugs, nursing care, etc., covered the remaining 50 percent. However, of the $2.3 trillion for hospital and physician care, most studies estimate 30 percent of those costs were administrative, with the largest amount for billing and insurance-related costs.

In both examples, the administration is not delivering value based on the investment. What we’re seeing is that spending is no longer going to the people who do the work. Rather, it is going to the middle or back office, that is ever-growing and absorbing all the money with limited to no return on investment. Just look at the outcomes.

While some money does need to go towards administrative costs and other operational and capital expenditures, there must be a way to ensure that as costs rise, the money ends up in the right hands. Increases in AI and automation should go hand-in-hand with making these industries run more efficiently. While our front-line workers do need to be supported by these other departments, there are several administrative processes, such as billing, that can be automated and run more effectively, like those in billing departments, etc.

At the Cicero Institute, we’re working on policies to try and better understand where money spent on educators and health care workers is being allocated to ensure that it is as effective as possible. We understand that these are complicated issues, but using our entrepreneurial approach, we can identify ways to increase retention and employee satisfaction.

Understanding the role that pay plays in retention and performance is also key. A recent study by the State of Work in 2023 found that “more than eight in 10 respondents (82%) said the key driver of their productivity was feeling happy and engaged at work.” Educators and healthcare professionals are unique in that their professions involve helping others either by teaching them or by saving their lives, and one could argue that they gain satisfaction by helping others. Better motivated educators and healthcare workers will likely lead to better student or patient outcomes for their students and patients. The bottom line is that rather than fighting the long, hard battle to cut costs in crucial fields such as healthcare and education, we should refocus our energy on better allocating the existing money to support the individuals who spend their lives helping others. We should utilize automation, drive innovation where possible, and shift our mindset to think about outcomes-based performance rather than administrative fluff.