Live Markets: US healthcare inflation slowdown may prove temporary - MS

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U.S. HEALTHCARE INFLATION SLOWDOWN MAY PROVE TEMPORARY - MS
The slowdown in U.S. healthcare inflation is "too good to be true", Morgan Stanley analysts say.

    U.S. healthcare spending is nearing $6 trillion per year and is still growing at more than 6% year over year, official healthcare inflation measures remain below 3%, the report said.
At first glance, that suggests the United States may have finally bent the healthcare cost curve. Hospital prices, health insurance premiums and pharmaceutical prices all show disinflationary trends, Morgan Stanley says.
But the recent slowdown appears temporary, the bank said, adding that gap reflects how healthcare prices are measured rather than underlying trends, according to the report.
The research note says hospitals are a key reason. They account for roughly half of healthcare personal consumption expenditures and more than $2 trillion of total healthcare spending. Hospital expenses are rising 100 to 250 basis points faster than inflation, while operating margins remain near zero.
That suggests hospitals may seek higher reimbursements from commercial insurers in the next contract renewal cycle, the report said.
The gap also reflects other structural factors, including lower government reimbursement rates, a shift to cheaper outpatient settings, rising utilization, and increasing complex medical cases. 
Policy changes such as the expiration of the ACA subsidies and Medicaid cuts, is expected to save the government $25 billion this year and $65 billion next year, with larger savings later in the decade, the report said. But, "overall, the cuts may moderate health care spending growth, but we do not expect a significant drop-off."
The bigger message: healthcare price growth may look calmer in the data than it feels to hospitals, employers and consumers.
(Sneha S K)
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Early snapshot https://fingfx.thomsonreuters.com/gfx/mkt/klvyogwrnvg/Pasted%20image%201782483555542.png
UMich current conditions v expectations https://www.reuters.com/graphics/USA-STOCKS/zgpoebgdqpd/UMich.png
UMich inflation expectations https://www.reuters.com/graphics/USA-STOCKS/jnvwzynompw/Umichinflation.png
Advance trade balance and GDP https://www.reuters.com/graphics/USA-STOCKS/gdvzeqogopw/gbal.png
Advance wholesale inventories and GDP https://www.reuters.com/graphics/USA-STOCKS/znpnobrgavl/awin.png