by Chris Becker
The cynic in me doesn’t completely trust the inflation measure (CPI) that is relied upon ad nauseam by the cohort of economists and hangers on. Don’t get me wrong, I think it measures “something” very well (and I’ve participated in the survey myself), and indeed the ABS Cost of Living sub indices do a good job too. Maybe I rely – like we all do – on anecdotal stories too much, focusing on the negative and absorbing the positive.
Whatever the case, it is clear that healthcare inflation is leaps and bounds ahead of “official” measures across the consumer basket. To put it another way, its never been a cheaper time to buy a bigscreen TV to sit in front of while you mull over the double digit increase in your health insurance each year.
A research note out from UBS puts paid to these concerns and highlights some interesting opportunities ahead. Here are some major points:
- Healthcare as % GDP to approach 10% in 3 years, but non-Govt % to rise faster
- Total Australian healthcare spending grew ~8% p.a. over the past 5yrs.
- On UBSe, health spending will approach ~$170b in FY15, and ~10% of GDP within 3yrs, driven primarily by ageing demographics.
- Government healthcare spend is ~70% of the total, and Federal health spend is ~4% of GDP, but forecast to near double as a % of GDP by 2050.
UBS rightly highlight – although with some hyperbole – a “new conversation” with regard to the relationship between the taxpayer, State and Federal governments, GPs and hospitals.
Whilst initiated with no due regard to political capital by the Abbott government with its $7 co-payment plan, this is a conversation we all need to have ASAP on healthcare – before spiraling into an obscene US-style system.
UBS goes on further to state their estimates on the impact of the co-payment:
Over the next 3yrs, we expect individual healthcare spend will grow above the Government contribution rate, to ultimately grow the overall market opportunity at mid-high single digit levels.
UBSe a modest rebasing of FY16 volumes, offset by the $7 co-pay, the net impact could range negative 1-2.7% for GP, pathology, diagnostic imaging services.
Perhaps a short term opportunity on any sentiment based correction in picking up those stocks affected? UBS say as much:
But, Government policy may yet moderate. After clarity around legislation and implementation, we expect listed healthcare operators will articulate more comprehensive strategies which include differentiated pricing by location; with the potential to more than offset any impact.
The circa 8% compounded growth in healthcare costs – aside from any penny pinching at the GP office – looks set to continue on, given the demographic shift and an overall change in policy towards “self-paid” care.
Maybe time to stop buying those TVs and go for a jog?