Compounding wisdom from a surprising source

I really struggled when Health Minister Aaron Motsoaledi announced (many sources, but here is one) that private healthcare costs have increased by 121% over the last decade.

He continued: “Over the past decade, private hospital costs have increased by 121%, while over the same period, specialist costs have increased by 120%.”

Anyone who measures growth over long periods without using compound annual rates can’t be taken seriously. Abusing numbers for shock value is a sure sign of a weak argument or a lack of appreciation for long-term issues.

121% over nine years (2001 to 2009) equates to an average cumulative annual growth rate of 9.2%. Now medical price inflation of 9.2% is high given inflation over the period and modest real growth in GDP and salaries. But 9.2% tells a very different story to a layperson than 121%. The 9.2% is more useful, more comparable to inflation, more easily able to be understood. 121% is more shocking.

I was really encouraged to read this in a story, quoting Matlala from HASA:

He pointed out that while the green paper said private healthcare costs had increased 121% between 2001 and 2009, this should be contextualised against the backdrop of contributions to public healthcare increasing by more than 100% over the same period.

“Even the price of bread has increased 111% over the decade… We have to face up to the fact that the cost of living has gone up, including healthcare,” Matlala said.

Finally, someone quoted acknowledging that the 121% figure is utterly misleading.

Incidentally, 111% over 9 years is equivalent to an 8.7% annually compounded growth rate, just 0.6% per annum below healthcare cost increases.