Rising Healthcare Costs Cloud U.S Market

With political talks regarding healthcare crossing the news spectrum and the Department of Labor proposing a rule where small businesses and self-employed individuals are able to group together to purchase coverage through "association health plans" (or AHPs for short). Especially for sole proprietors, such as Uber drivers or other freelance workers emerging in what has become known as the “gig-economy” this new policy could transition the U.S healthcare system towards future needs. Yet, the underlying factors of rising healthcare costs are not mitigated by such policies. Health care spending per person for the commercially insured reached a new high of $5,407 in 2016

The most recent report from HCCI revealed a 4.6% price increase in healthcare across prescription drugs, surgery, emergency-room visits and other services, higher than the 4.1% increase in 2015 and below 3% in 2014 and 2013. With healthcare spending numbers derived from the product of price and utilization, an investor might expect to see a small growth in both as the reason behind the increase, but utilization experienced a net decrease among various categories and prices increased. President of the HCCI, Niall Brennan, commented that “Working Americans are using less care and paying significantly more,”

Particularly large price increases were found among administered drugs, emergency room (ER) visits, and surgical hospital admissions. Pharmaceuticals drugs, often the focus of public criticism, stood out among the other categories and witnessed the largest cumulative price increase out of the four studied categories (inpatient, professional, outpatient, and prescription drugs) over the 2012-2016 period, with a price increase of 24.9% and utilization increase of 1.8%. Pharmaceutical companies in the past have cited the additional R&D spending enabled through higher drugs prices, arguments that are supported by data such as medical citations, Nobel prizes in medicine, and development of 43.7% of the NMEs (new molecular entities). Critics of the U.S. pharmaceuticals argue that other countries with drug price regulation were significant contributors to pharmaceutical innovation

Keith Knutsson of Integrale Advisors commented, “the healthcare industry appears prone to disruption; there is an inherent inefficiency in the system. The question remains whether this change will be pushed by investors, the government, or both.”

Note: All monetary growth numbers stated are not adjusted for inflation.