Where Is The Double-Digit Healthcare Inflation?

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 |  Includes: HUM, IYH, JNJ, LLY, MET, MRK, PRU, UNH, XLV
by: Pat Stout

Where is the double-digit healthcare inflation?

The past few days on Fox and CNBC I have heard talk of double digit healthcare inflation. And decided to see if I could find it. It should be easy to find, right?

Off to the St. Louis Fed website to review medical inflation. What was found might surprise some, as it has been falling and is nowhere near double-digits.

First up is the consumer price index for all urban consumer for medical care. The near-term trend is flat and the long-term trend is down.

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Next is the consumer price index for all urban consumers for hospital and related services. Near term trend is down. Long term trend is down.

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Next the consumer price index for all urban consumers for medical cares commodities. The near-term trend is flat and the long term trend is down.

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Next the consumer price index for all urban consumers for professional services. The near-term trend is down and the long-term trend is down.

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No luck finding double-digit inflation in the consumer price index. Then the employment cost index benefits for private industry workers was reviewed. The near-term trend is down and the long-term trend is down.

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All the indexes reviewed registered disinflation for many years. Could it be that the government inflation data is off or medical inflation isn't the problem it is made out to be?

It is unclear what this means for health insurers like Humana (NYSE:HUM) and Unitedhealth Group (NYSE:UNH), or drug companies like Merck (NYSE:MRK), Johnson and Johnson (NYSE:JNJ), or Eli Lilly & Co.(NYSE:LLY), or for life insurance carries like MetLife Inc. (NYSE:MET) or Prudential Financial (NYSE:PRU). However if healthcare cost is not running double digits, then there must be some winners or losers in the group. Might life insurers come out ahead as life expectancy increases and provides for a greater use of the premium float?

Judging for the trends in the medical care indexes it would appear that the market has addressed the pricing pressure. The key question then becomes, why do so many feel medical inflation is running double digits?

Disclosure: I am long MET.