08/22/11 02:58PM EDT

Continuing on a theme I wrote about last week…  Some of the differences between 2008 and today are more problematic than the similarities: joblessness is higher, more people are reliant on food stamps for sustenance, and the financial crisis threatening to wreak havoc on our economy is not here in the US and therefore less within our government’s control. 

I’m going to add two more differences:

First, in 2008 Bernanke had not yet shown his hand and had not started the printing presses; we now we have negative real rates, with more to come, and people actually know how ineffective the Fed’s tools are.  In 2008, we didn't really know. 

The second comes from today’s Hedgeye Healthcaster.  The cost of funding healthcare premiums is being transferred from the employers to the individuals, further limiting the consumer’s discretionary spending.  

The following is taken from the today’s Hedgeye Healthcaster.

Employer Cost Shifting/Discretionary Healthcare:  In the latest Large Employer Survey on Expected 2012 benefit offerings, the National Business Group on Health (Here) found that some 53% of Employers would increase the amount workers pay toward their premiums next year while 40% said they would increase deductibles for in-network care. 

The music on this cost shifting dance has been playing for the better part of the last decade as benefit expense continues to grow at healthy premium to GDP.  

Employers have responded by attempting to transfer costs back to the individual – a move which has resulted in the accelerated growth in high deductible/co-pay health plans; which inhibits health consumption for many individuals, and is a meaningful contributor to the growing population classified as ‘underinsured’. 

The net effect of this ongoing cost shift has been an to push healthcare spending increasingly into the discretionary camp; especially into a downturn.  The correlation between Healthcare Spending and Discretionary Spending has been making higher highs over the last decade, reaching a peak TTM correlation of 0.97 into the March 2009 trough.  Looking back over prior recessionary periods, the most recent downturn showed the strongest correlation between healthcare & discretionary spending by a large margin.    

We’ve been highlighting the increasingly discretionary nature of healthcare spending for some time, but it’s probably worth another callout here as growth slows and employers continue to cost shift health expenses back on an employee base now mired in negative real wage growth. 

The similarities, given that we are comparing the present situation to crisis of 2008, are inherently negative.  Energy prices and the VIX are elevated, stocks have fallen off a cliff, and consumer confidence is depressed.



Howard Penney

Managing Director


Rory Green



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