New ETFs Aim to Help Investors Pay for Rising Healthcare Costs

With the rising costs of healthcare steeply outpacing inflation, could more people afford it by investing in the sector?

That’s part of the idea behind the first two ETFs by longtime healthcare consulting firm Milliman. This week, the company filed with the Securities and Exchange Commission for the Milliman Healthcare Inflation Guard (MHIG) and Healthcare Inflation Plus (MHIP) funds. Those will be the first in a broader line of ETFs designed to help address financial risks among workers, retirees, companies, institutions and governments. The move into exchange-traded funds follows three years of work between Milliman’s life and health divisions, said Adam Schenk, principal and managing director of fund services at Milliman Financial Risk Management.

“The idea was, ‘can we turn this into some kind of investment product?’” Schenk said. “Because everybody is having trouble keeping up with healthcare expenses.”

Dissecting the Funds

Using a mix of health industry and related equities, Treasurys, TIPs, corporate bonds, commodities and liquid alternatives, MHIG “will seek to meet the healthcare costs for an average individual utilizing an employer-provided health plan in the US over time,” the company said in an announcement. The other fund, MHIP, will aim to exceed that, by allocating more of its assets to equities. The two products will use a quant model developed from Milliman’s research on the rising costs of healthcare.

There’s a prescription for this:

• The company’s own estimates put the lifetime healthcare costs for a 65-year-old couple retiring in 2025 at an average of $588,000. That’s assuming they enroll in Medicare, and the estimate doesn’t account for long-term care, dental treatments or non-prescription medications.
• Healthcare stocks struggled earlier this year, but there was a rebound last month. The S&P 500 Health Care Index is up 13% year to date, while the broader S&P 500 is up over 15%. However, the S&P 500 has vastly outperformed the healthcare index over three, five and 10 years.
• Healthcare costs tend to increase by 7% to 8% per year, compared with 2% to 3% for the Consumer Price Index, Schenk said.

The Prognosis: The company’s work with insurance companies and government groups have shown that problems of rising costs, such as those from promising new drugs and treatments, are systemic, said Hans Leida, principal and consulting actuary at Milliman. “All of those stakeholders in one way or another grapple with those problems,” he said. But, “this is personal,” he added. “I see people in my life with needs to save for the future.”