To prepare for soaring health-care costs, many companies and government entities have formed investment pools to cover employee health expenses. These entities invest in health-related mutual funds (such as those in the biotechnology and pharmaceutical industries) on the assumption that these funds will keep pace with medical costs. But are these investments a good way to hedge the costs of health care? According to a new study, they’re not. After examining the monthly returns of health-care mutual funds for the past 20 years and comparing these figures to the medical care component of the Consumer Price Index for all urban consumers, the authors concluded that companies should not overemphasize health-care investments to hedge against health-care inflation, because the former don’t reliably keep pace with the latter. In fact, the authors found that ordinary Treasury Inflation-Protected Securities provide a better hedge.
Health-related investment funds are not the best hedge against the rising cost of consumer health care.