As Hyperinflation Sets In, Medical Cost Is A Key Concern

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As Hyperinflation Sets In, Medical Cost Is A Key Concern
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  • After many years of laying low, Americans are feeling the pinch from a rapidly increasing inflation.

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  • For the 12 months ending October 2021, the consumer price index rose 6.2% - this is the biggest rise in over three decades.
  • Supply-chain interruptions are one of the main reasons for the current hyperinflation in the U.S.
  • The Biden Administration is pushing its economic agenda in the hope to relieve inflation worries.
  • In an already expensive healthcare system, rising medical costs are a key concern, especially for those seeking non-emergency health services like braces.

Reasons for America's Current Inflation

The Fed’s target of inflation of 2% for 2021 more than doubled by May this year to 6.2% as was shown by recent figures released by the Bureau of Labor Statistics. One of the main reasons for this is that supply cannot keep up with the rise in consumer demand, mainly caused by supply-chain interruptions.

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Additionally, a lot of industries are experiencing difficulties finding labor, drivers, and containers. To accommodate employee needs, they are forced to pay extra money in benefits and up-skilling, which affects the prices consumers pay.

Whether these increasing costs are temporary or are here to stay is of great concern to most consumers, especially when it comes to their basic needs, including food, energy, and medical costs.

Despite the Federal Reserve’s and The Treasury’s reassurance that they will fight inflation with monetary policy, if it persists, some insist more inflation may be here for quite some time.

Inflation And Medical Treatment Costs

The U.S. has a complex medical system that lacks set prices for medical services. This allows providers to charge according to their market. That means that healthcare services depend on who is paying and the geographical area. Besides private or government insurance programs, many people have no medical coverage and pay for medical care out of pocket.

Now, it is claimed that many American families are falling into debt to cover medical expenses. Increasing health insurance negates the raise in American salaries, and increased healthcare costs affect everyone, even if they aren’t sick. Unfortunately, the U.S. has a complex health care system that relies heavily on administrative processes with a lot of bureaucracy.

Prices do vary, but one of the most expensive procedures is heart valve replacement, which costs around $170,000, followed closely by heart bypass at around $124,000.

Two very common procedures in older people are hip and knee replacements, with the former costing around $35,000 and the latter over $40,000.

Besides emergency medical treatments, some treatments are based on esthetics but are considered essential for physical and emotional reasons. These include maxillofacial surgery, rhinoplasty, breast tissue reduction (both in men and women), and orthodontic treatments.

Esthetic procedures are not cheap, and their average national cost often exceeds $5,000. As a matter of fact, according to Smile Prep, the online media company covering innovations in cosmetic dentistry, braces cost between $1,000 and $13,000. The range in prices is so big because the total cost depends on the type of braces, the treatment required (since some situations are unique), and the location.

At-home clear aligner treatments are meant for more moderate teeth straightening and can cost anything from $1,000 to about $3,000. Traditional braces fall in the more expensive range, costing anything between $,3000 to $7,000. Dental coverage pays for about 50% of this cost if the orthodontist recommends the treatment for medical reasons.

How Will Inflation Continue Affecting Medical Costs?

The U.S. is not the only country with rising inflation rates compared between the third quarter of 2019 and the third quarter of 2021. Globally, most economies with rates of below 2% for nearly a decade have seen increases. On the other hand, Japan is struggling with worrying negative inflation of -0.2%. Overall, inflation in the OECD region increased 4.3% with Europe faring better than the 5.3% of the U.S.

Food and energy were the main contributors to the increase, and it’s starting to cause concern among Americans. More so, they worry about how inflation affects their medical care, and rightly so.

Figures recently released by the U.S. Bureau of Labor Statistics showed that between 1935 and 2021, medical care costs have risen by 5,041.58%. That places the average annual inflation rate for medical treatments at a whopping 4,68%. Since 2016, the annual increase has been 4%, and projections by the government that it will increase by 4.9% annually over the next 7 years. How this affects healthcare trends depends on how soon inflation eases off.

Conclusion

Families with limited budgets and no insurance still require medical care, including dental treatments. Health care continues to be expensive because most individuals are insured by private companies, while just 90% of the population is covered by some health care program. In other developed countries, this figure is closer to 100%. Meanwhile, the government needs to play a more active role in negotiating prices, helping to make healthcare more affordable and less vulnerable to inflation.

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Ankur Shah is the founder of the Value Investing India Report, a leading independent, value oriented journal of the Indian financial markets. Ankur has more than eight years of equity research experience covering emerging markets, with a focus on India and South East Asia. He has worked as both a buy-side investment analyst for a global long/short equity hedge fund and a sell-side analyst for an emerging markets investment bank. Ankur is a graduate of Harvard Business School. You can learn more about his latest views on global markets at the Value Investing India Report. -- He can be emailed at AnkurShah47@gmail.com
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