In recent decades, health insurance premiums have steadily climbed, leaving many families and individuals struggling to afford coverage. While people are quick to blame medical costs and administrative inefficiencies, one critical and often overlooked factor is the nature of our money itself, fiat currency.
What Is Fiat Currency?
Fiat currency or fiat money is government-issued money not backed by a physical commodity like gold or silver. Instead, its value derives from the trust and stability of the issuing government. Since the United States abandoned the gold standard in 1971, the dollar, like most global currencies, has been purely fiat.
Central banks, such as the Federal Reserve, have the authority to create new money at will. While this ability can help stimulate the economy during downturns, it also brings a significant side effect: inflation.
Fiat Currency vs. Bitcoin
Both buzzwords are commonly misunderstood. Bitcoin is a decentralized digital currency operating on a blockchain. A blockchain is a secure, transparent ledger, free from government or central bank control.
Unlike fiat currency, which can be printed at will, Bitcoin has a fixed supply cap of 21 million coins, making it resistant to inflationary policies. This scarcity resembles the discipline of commodity-backed money, like gold, but in a digital form.
Bitcoin could help address rising health insurance costs by reducing reliance on inflationary fiat systems. Its limited supply prevents the unchecked money creation that fuels demand-pull inflation in health care. Over time, this could lead to stabilized costs. Insurance carriers could benefit by holding Bitcoin as a hedge against fiat depreciation, preserving their capital’s value.
Bitcoin’s global, borderless nature could also simplify cross-border transactions for carriers operating internationally, cutting costs associated with currency exchange. While widespread Bitcoin adoption faces regulatory and practical challenges, its fixed supply and decentralized nature offer a potential shield against the inflationary cycle driving up health care costs, benefiting both consumers and insurers.
Inflation and the Health Care Industry
When new money enters the economy, it doesn’t do so evenly. Often, it flows first into sectors connected to government spending and finance, with health care being a prime example. The U.S. government is a massive health care buyer through Medicare, Medicaid, and subsidies under the Affordable Care Act. When more money enters the system, demand rises, and prices follow.
Here’s how this plays out:
- More Money, Same Resources: If the money supply grows faster than the economy’s actual ability to produce goods and services (like medical professionals, hospital beds, and pharmaceuticals), prices rise. This is classic demand-pull inflation.
- Asset Inflation: Inflation doesn’t only hit consumer goods. It also affects the price of assets, including medical equipment, real estate (where hospitals and clinics operate), and health company stocks. These costs are passed down to patients and insurers.
- Wage Pressures: As prices rise across the economy, health care providers need to pay higher wages to attract and retain staff. This again pushes up overall health care costs.
The Insurance Feedback Loop
Health insurers are not immune to inflation. They are middlemen trying to keep up with rising costs in various areas. As hospitals and clinics charge more, insurers increase premiums, deductibles, and out-of-pocket maximums. This cycle becomes self-reinforcing:
- Inflation increases health care costs.
- Insurers raise premiums to maintain profit margins and cover costs.
- Consumers demand more coverage or government assistance.
- Governments increase spending and subsidies, often funded by more debt or monetary expansion.
- More money enters the system, fueling further inflation.
Fiat Currency Enables Unsustainable Spending
Without the discipline of a commodity standard, governments face little restraint on deficit spending. Health care is politically sensitive, so there’s strong pressure to increase funding, often regardless of long-term cost implications. This spending, in turn, inflates the money supply further, contributing to the very cost pressures it seeks to relieve.
In short, fiat currency allows for a dangerous cycle of spending and inflation that’s especially visible in heavily regulated and subsidized sectors like health care.
What’s the Alternative?
Critics argue that a return to sound money principles, such as a commodity-backed currency or rules-based monetary policy, could help stabilize health care prices by limiting inflationary pressures. While such systemic changes are complex, recognizing the role of fiat currency in driving health care costs is a crucial first step in crafting meaningful reform.
Health insurance rates aren’t rising in a vacuum. Consider this: administrative overhead and demographic shifts lies a deeper systemic issue: the inflationary nature of fiat money. Until we address how endless monetary expansion distorts prices, especially in vital sectors like health care, we’re likely to see premiums continue to rise.
Written by: Jared Deines