Healthcare is one of the largest expenses investors face as they age. According to the Milliman 2025 Retiree Health Cost Index, the average 65 year old couple retiring today is approaching $600,000. And last year, medical expenses cost $35,000 for a family of four—that’s nearly triple the $12,000 that same family would have spent in 2005. What’s more, the figures are more than a 6% increase over the consumer price index (CPI).

But despite decades of rising costs, most portfolios aren’t built to address that risk directly.

Actuarial firm Milliman FRM is looking to change that.

With the launch of its first ETFs: the Milliman Health Care Inflation Guard ETF and the Health Care Inflation Plus ETF, the firm is attempting to turn healthcare inflation into something investable. But unlike traditional inflation hedges, tackling rising healthcare costs is far more complex.

“Healthcare is very difficult,” said Adam Schenck, Principal and Managing Director of Fund Services at Milliman.

“A lot of those costs are from claims. That’s a relationship between a patient, a doctor, and their insurer.”

“So unlike oil or other things that you could hedge because you can get a barrel of oil delivered to your house and then resell it, you can't really do that with healthcare,” he explained.

Milliman’s approach, Schenck explained, is to work backward from the data. Using decades of healthcare claims information, the firm analyzes what actually drives costs upwards, from pharmaceuticals to hospital visits. The firm then builds a portfolio designed to reflect those underlying forces.

“We look inside that data to find what is driving the claims,” Schenck said. “Then we find a basket of securities that, in our view, has the highest likelihood to correlate with those going forward.”

The Guard ETF is designed to track healthcare cost inflation while minimizing risk, while the Plus ETF aims to exceed the healthcare inflation over time by taking on additional equity exposure.

Structurally, the funds blend multiple components: Treasury allocations act like a stabilizer, while equities (primarily in the healthcare sector) are weighted based on their relationship to actual cost drivers, rather than traditional market-cap approaches. A small allocation to broader “supply chain” companies and liquid alternatives, such as gold, adds diversification.

But the strategy raises an important question: can a market-based portfolio truly hedge something as individual as healthcare costs?

“We can’t really get to that level of specificity,” said Schenck.

Instead, he said,  the goal is to approximate the broader trend and give investors a framework to plan around it. Milliman has paired the ETFs with a healthcare cost calculator to help investors estimate their personal exposure and determine how much capital to allocate.

That allocation, Schenck argues, should be intentional.

“We think you should have a sleeve dedicated for saving for healthcare,” he said.

The timing of the launch is notable. With investors holding roughly $8 trillion in cash and short-term instruments, many are focused on preserving purchasing power. But with healthcare costs running well above Treasury yields, just sitting in cash may not be enough.

“The current trend is running at about 7% and current Treasurys aren’t paying over 4%,” Schenck said.

That gap highlights the challenges, but also the opportunity.

Still, Schenck cautions that these strategies are not a perfect hedge.

“There will be periods where these products may not meet the trend,” he said. “But what we’re doing is stacking the deck as much as we can.”

Source: The ETF Show - Investors Can Fight Healthcare Inflation with Newly Launched ETFs