Quite a few articles have appeared recently about increasing healthcare costs (for those of us affected by Minnesota). In general, many families worry about healthcare costs because it can lead to higher premiums (and lower benefits) for all members. This is one major challenge for families and individuals financially, so it's worth asking about ways to reduce this burden (a lot of people could benefit).

Is there a way to hedge rising healthcare costs? When I look at the 20 year history of rising healthcare costs, the growth is significantly outpacing inflation and it would be useful to know of a way (or ways) to hedge this cost, outside of expatriating.

Meaning of hedge in a financial manner; basically, if you suspect a cost will rise by 20% in the next year, you'd like to get at least that gain with a portion of your money. So a person invests $10,000 in an investment that allows them to capture the 20% rise in what will be more expensive the next year.

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    keep in mind that these are proposed and not approved "For example, Blue Cross and Blue Shield wants to raise prices on some of its plans by 50 to 58 percent. The rate increases are only proposals for now and must be approved by state regulators before they can be finalized, Minnesota Public Radio reported." – mhoran_psprep Jun 6 '15 at 15:32
  • Can you please define hedge? Does it mean move to a cheaper state?; finding a different insurance plan?; price shopping for medical providers?; Improve your health? or even political options to pass new laws, or repeal current laws? – mhoran_psprep Jun 9 '15 at 10:09
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    You don't have to expatriate to take advantage of cheaper healthcare elsewhere. Medical tourism is another option if you are well enough to travel. – JohnFx Jun 9 '15 at 18:30
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    This interpretation of hedge is completely wrong. Hedging means you protect against unexpected change. When the market expects healthcare cost to increase by 77% next year, and it turned out to be 64%, you actually need to compensate the counterparty by 13% if you went long. – base64 Jun 11 '15 at 14:26

Invest heavily in the healthcare industry? Unless you think that prices and profits will be disconnected.


This is a very interesting question. Unfortunately, in the way you wrote the question the answer is no. Essentially, you would be asking someone to give you a ~20% return for your cash on something that is almost guaranteed when holding your cash only gets them a <1% return. Would anyone take the other side of that deal?

Interestingly though, you can to some extent hedge surprises in health care costs. For instance, investing in the healthcare industry as David Rice suggests is a partial hedge. The prices of those industry stocks already has future expected cost increases included. However, if costs were to jump even higher than expected you would gain some of the added cost you would pay in healthcare back. Not that I recommend this strategy, as you lose diversification, but this is a valid and reasonable reason to slightly overweight american healthcare companies for someone in your situation.

Note that the Wiki article you mention talks about hedging surprises as well. "If at planting time the farmer sells a number of wheat futures contracts equivalent to his anticipated crop size, he effectively locks in the price of wheat at that time." Thinking that way you may actually be able to buy health insurance now for two or three years in the future essentially locking in expected price increases today. Probably not the answer you were looking for, but the best analogy for what financial hedging truly does.

  • As a side note, I can't recommend expatriation, I've lived many places and life is pretty good in Minnesota even if my health care costs were higher there. – rhaskett Jun 9 '15 at 23:35

I think the closest you can come is to buy health insurance, which had the company's bet on trends in healthcare costs already built into it. But as you've posed the question, I agree that the answer is "no" -- at best you might find someone willing to give you short odds that the rate increases over 20% or long odds that it doesn't go up at all, or something of that sort... and that isn't a bet the markets are designed to handle.

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