Public health is a public good: Health care provision is associated
with positive externalities that benefit all of society. This means that
governments cannot prudently dissociate themselves from involvement
with the provision of health care to the citizens of the state.
in the United States than any other piece
of legislation enacted in the country’s
history. The bill will provide health care
to 95 percent of the U.S. population and
is expected to cost $940 billion over 10
years. While the full impact of the new
law will not be felt until 2018, it is certain
that the implementation of the bill will
have significant ramifications for the future costs of medical care.
The health insurance sector perhaps
will be subject to the most significant up-
heavals as a result of the bill, though for
hospitals, drug companies, and doctors,
the impact also will be significant. By 2014,
it no longer will be legal to discriminate
against those with prior conditions, and
caps on lifetime payments to chronically
sick people will have been abolished. In
addition, there will be much stricter regu-
lation and increased transparency around
the amounts that insurance companies pay
out in claims. These measures are hardly
surprising, given the rhetorical lambast-
ing that the industry received from Obama
while he was campaigning for the bill. But
on the plus side for the sector, more young
and healthy people will be encouraged by
the tax system to become insured, increas-
ing the industry’s revenues. Hospitals will
need to expand capacity (and/or produc-
tivity), but since more of their patients will
be insured, the increased burden on hospi-
tal services will be financed.
FIGURE 3
U.K. and U.S. Medical Care Inflation Rates
6%
5%
4%
3%
Inflation Risks Are Diverse
In the current economic environment,
the outlook for inflation over the coming
years is uncertain. Examining inflation
risks at a more granular level can give a
clearer view of the specific risk profile
faced by individual insurers and can go
some way toward reducing this uncertainty. Health care in the United States
is one example of a sector that can experience inflation rates that are divergent
from those of the macroeconomy. The
health care bill means that this issue is
especially salient. Explicitly modeling
medical cost inflation can enhance an
insurance company’s understanding of
the liabilities it faces.
2%
1%
HArry HiBBert works as an analyst
at barrie and Hibbert in the Financial
economic Applications team. before
this, he studied economics at Cambridge
University.
u.s. medical care inflation
u.K. medical care inflation
0%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
This article is solely the opinion of its author.
It does not express the official policy of the
American Academy of Actuaries; nor does it
necessarily reflect the opinions of the Academy’s individual officers, members, or staff.
