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Analyst Makes a Case for Deflation in U.S. Healthcare Costs

Originally published by Seeking Alpha on February 20, 2018 Read the original article.

Norman Rockwell is famous for capturing everyday scenes in his paintings. One of them from several decades ago was the doctor’s house call.

Robert Prechter harkened back to that time in his book, The Socionomic Theory of Finance, when he was discussing how social trends change. One of the topics he mentioned was healthcare:

In 1963, medical care was cheap and accessible. Doctors made house calls for $20. They treated indigent patients for free. Hospitals were so accommodating that new mothers typically stayed up to a week before being sent home, and the stay and the care were affordable. Would anyone have guessed that in 2015 pills would sell for $2, $20, $200 and even $1,000 apiece, a surgical procedure and a week in the hospital would cost one-third of an annual wage, and people would have to take out expensive insurance policies just in case they got sick?

Recently, an analyst made a case for why those high healthcare costs will soon be hit by deflation. Read this excerpt from a Feb. 20, 2018 Seeking Alpha article:

For the better part of the past five years, the healthcare sector has been a major beneficiary of the Affordable Care Act as healthcare costs have soared. Healthcare stocks have benefited greatly from this surge in corporate profits. This trend that has been a boon for the healthcare sector will soon reverse in the coming years. For the first time in many years, there is a strong case to be made for deflation rippling through the healthcare sector for two primary yet different reasons.

The first reason has nothing to do with politics as the United States would be forced to change healthcare policy simply due to cost regardless of the current plan. Soon, interest expense, Social Security, Medicare, and Medicaid will be greater than total tax receipts. Currently, these four line items represent roughly 65% of total tax receipts, reaching over 80% in the last recession.

Regardless of the decided upon future plan, the idea would be to provide healthcare for less money, not more money.

Future changes to healthcare spending by the federal government are going to decrease, not increase for the first time in many years. This will have a negative impact on the profitability of the healthcare sector for the next several years.

The second reason happens to be the current proposed changes to healthcare from the current administration. I always stress I am not making political statements when discussing policy. I, rather, am simply trying to look at the facts of the new proposed budget and analyze what the impacts to the economy would be, both positive and negative.

There will be areas of the economy that benefit from the new tax plan and new budget proposal, but healthcare is not one of them. The cost of healthcare has grown out of control and there will be a proactive effort to reverse this in the coming years.

You can read the entire article by following the link below:

https://seekingalpha.com/article/4148382-deflation-coming-healthcare

 

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