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How To Protect Against Rising Healthcare Costs

Posted in Money

Overview

I wrote and published this post originally in 2015 on a different blog and now we’re expecting to see another 50-70% hike in many areas across the United States. The following article covers how to protect yourself against rising healthcare costs. I will reiterate a point I made last year and a point that I’ve been making the last four years: healthcare costs are rising because we’re facing a labor shortage in medicine – from physicians to nursing to medical specialties. The BLS shows a labor shortage, but under reports it because it has mis-estimated the demand for healthcare, which has risen faster than it expected. Until this is resolved – and we’re not close to resolving this – healthcare costs will continue to rise. Labor shortages cause huge price spikes.

Background

Health care costs for 2016 will rise anywhere from 15-77% for many states in the United States. Health care consumers know that their incomes haven’t increased by the same margins, and the S&P 500 currently is up 2.5% (as of this article’s written date), and one concern that I’ve heard quite frequently is “how do we offset these rising costs?” Make no mistake, in some areas health care is seeing high inflation and while the Federal Reserve continues to claim that inflation is low, these rising health care costs are hurting individuals and families throughout the United States. While most media will complain about problems, we offer solutions for families and individuals willing to work at offsetting these costs. As our man Solomon puts it, the diligent will always be ahead of the lazy.

The number one reason for rising health care costs (and you won’t hear this in media) is that the United States is facing a massive labor shortage in medicine. After QE, investors piled money into tech startups and real estate, neither of which solve problems that most families and individuals face, like cancer, heart attacks, or the loss of loved ones. The result has been that companies, like Facebook, are valued in the billions, while families need health care and solutions in health care. Most tech companies would cease to exist in a market where the natural interest rate is suppressed by a central bank (the natural interest rate is 7.6%). In addition, many media mistakenly think that pharmaceutical companies are trying to game individuals for profit, when the reality is that one drug can take twenty to thirty years to finally get on the market, and can be removed from the market if too many people experienced negative side effects. Most medical consumers don’t realize the amount of work they’re paying for when they buy a bill, as well as the protection the company will need for covering potential lawsuits (consider that these lengths of time and lawsuits only discourage new drugs from hitting the market – why bother trying to cure cancer when there’s that much risk?). These explain some of the many reasons that we’re seeing, and will continue to see, rising health care costs.

How To Protect Against Rising Costs

The most effective way to protect against rising health care costs is to either work in the health care industry or solve a problem in the health care industry, which will also be the two ways that most people avoid. The more work you put into an area of life expecting results, the more you will get out of that area for life. If you’re a young person and are looking for a stable job: health care, health care, health care. Let’s discuss both of these methods in more detail:

1. Work in the health care field. Prepare to be a millionaire someday. Many of the future millionaires will have worked some or most of their career in health care. In what century have humans had zero medical issues? None. Health care will always be needed, as problems will always arise in this field. “Problems” is the code word for opportunity – the more problems, the more solutions you have to offer. When we look at the BLS data, we see a shortage in health care labor, but the BLS also under estimates the amount of health care demand in the next twenty years. Post Obamacare, we’ve seen increased demand for health care needs, meaning that the BLS’ data under estimate the future demand for medical labor. Finally, because demand for medicine and medical care will increase, medical workers will have tons of negotiation power – they can demand for raises that must either be met, or will tell them to move on to another destination. As an example: a friend of mine with ten years of nursing experience recently demanded an income level in the 1% category (she has several specialties in nursing, which are also rare) and even though she was turned down in a few places, she landed an opportunity in another area. She can continue to put wage pressure on her employers, while most workers don’t have this option.

2. Solve a specific health care problem. This opportunity offers the most payout – possibly billions depending on the problem you solve. Before anyone posts that they need a degree in health care to solve a problem, Jack Andraka solved a major health care problem without a medical degree; Jack was in high school at the time. The key to solving a major health care problem is to focus on one specific problem, learn everything you need to know about that one problem (the internet will help), then test solutions to the problem. Going to college to do this only makes sense in a world where information isn’t free and available like it is on the internet.

These two actions are the only way to offset the growing labor shortage in medicine, which is one of the major reasons that health care costs are rising; unfortunately, the remaining solutions cannot offer this, so while you will have some protection, the costs may still rise above your protection.

Consider health care indexes. Some health care indexes have been outperforming the S&P index, allowing savers to take advantage of one way to protect against rising health care costs. The below images show two simple examples, the SPDR Health Care Select Sector Fund and the Guggenheim S&P 500 Equal Weight Healthcare ETF, both of which have done better than the S&P 500 at the time of this article.

Note that many other healthcare indexes exist and depending on how you want angle your protection against rising healthcare costs, these may not be the best choices. While buying a health care index fund might seem like the most appropriate action to take, there are a few concerns to consider with an additional warning that these carry significant risks (you can lose a lot of money):

  1. Like all investments, you should do your own due diligence before considering a healthcare index. It is possible that we could have a decade of healthcare costs falling significantly, lowering your investments’ value. Or, a politican could nationalize healthcare, making costs soar, but wiping out all your investments. Also, you should expect heavy fees, which may be inappropriate for your portfolio.
  2. Under a nationalization scenario, you will lose everything in your HSA. There is a possibility of this happening.
  3. These won’t guarantee that the rising costs in your regional market will be offset, as many of these indexes match a segment of healthcare.
  4. These will not offset the labor shortage we’re facing in medicine and healthcare right now. In this case, you’ll lose money in your investments and lose money on more expensive healthcare.

They still offer a an alternative to hoping that costs go down for some investors willing to take risks. If health care costs were to fall, these indexes would fall too, which is why investors with a strong risk appetite may prefer to use them to offset higher costs. For investors with low risk tolerance, these may not offer a solution to rising costs.

Track your own patterns and cultivate your own skills. Before modern medicine existed, people and families engaged in self-care. While self-care isn’t the best solution, with some modern tools like blood pressure monitors, blood sugar monitors, and others, a person can learn their body’s pattern and engage in some self-care for certain situations that would help reduce medical expenses. An old cough syrup advertisement used to state, “Dr. Mom” and feature a mother using her knowledge to take care of her kids. The major downside to self-care is that if you under assess the problem (or are unfamiliar with it), the problem could cost you your life. As a general guideline for those using data to track their body’s medical behavior: if you ever come across an outlier event – such as exceptionally high blood pressure – stop and see a doctor immediately; if you have a long baseline through enough of your own measurements, you’ll be able to spot these outlier events. Finally, eat healthy, keep a lower body fat percentage (less than 15% for males), and complete a doctor-approved exercise program (ie: if you’ve had heart problems, your doctor may advise doing a daily walk instead of a daily run).

While I will agree with anyone who points the finger at the central banks for rising health care costs, simply blaming an institution does not solve the problem. We should work at solving health care problems and reducing the burden on families and individuals. For those with fewer resources, or those who are just starting out, this post should provide a few ways to possibly reduce the costs. For people who are looking to drastically increase their wealth and expand their possibilities, health care will be one of the strongest fields in the next century and beyond.


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