April 20th, 2016

Emerging Risks for Life, Health and Longevity

Posted at 1:00 AM ET

Here we review recent GC Capital Ideas posts on the emerging risks affecting life, health and longevity. 

Life, Health and Longevity Emerging Risks: In the last 150 years, dramatic improvements have been made in life expectancy. Some developments such as immunizations for smallpox, polio and measles created quantum improvements, while the proliferation of better lifestyles, clean water and more nutritious diets provided gradual and continuing change. While most historical life expectancy developments resulted from improvement in children’s mortality, in the 20th century, mortality rates declined significantly for older ages.

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Longevity Risk: The impacts to society from changes in longevity and life expectancy will be wide-ranging and incredibly difficult issues to grapple with. A 2012 International Monetary Fund (IMF) study revealed that if individuals lived three years longer than expected the cost of aging could increase by 50 percent. This translates to 50 percent of 2010 gross domestic product (GDP) in advanced economies and 25 percent of 2010 GDP in emerging economies. Globally that amounts to tens of trillions of US dollars. The United Nations expects the aggregate expenses of the elderly will double over the period between 2010 and 2050. The figure below shows the projected trend of rising life expectancy to continue in all regions of the globe regardless of economic advancement.

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Escalating Medical Costs: The impact of rising healthcare expenses has been and will continue to be felt around the world, in developed and undeveloped nations alike. Rising healthcare costs are putting a strain on governments worldwide. Nowhere in the world, however, are expenses as high as they are in the United States, where the impact extends into the medical component of workers compensation costs. Although the rate of growth has seen some stability, it still outpaces the US growth rate of inflation. The figure below illustrates that per capita spending in the United States in 2010 was over USD 8,000. A key driver for higher US costs is that it spends more on hospital care and medical specialists. Hospital costs are 60 percent higher in the United States than in other Organization of Economic Cooperation and Development countries. Spending on the use of specialists is more than two times higher. Forecasters believe this trend will increase.

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New Economics Are Creating New Medicine: Through the Affordable Care Act, many measures are being implemented that are expected to have a positive impact on bending the healthcare cost curve downward in the long term. However, the same act removed annual and lifetime limits for medical insurance claims. As a result, the maximum potential loss from a single individual is a new frontier of risk, with new heights being reached each year. This is both a frequency and severity issue.

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