The ongoing debate about health care has become more focused on ideological lines than on what realistically can and should be done. Though not surprising, it is unfortunate.
It would be wonderful if the conversation shifted to what changes can realistically be made and what changes should be made to prevent a worsening crisis. Here are some ideas, along with potential investment plays.
Big Pharma Is Not Going Away
Regardless of what you think about the drug companies, they are not going anywhere. The pharmaceutical lobby has made certain that it has a seat at the table and it seems probable that any new laws will benefit them. Even though some concessions will be made, the Obama Administration has quietly signaled a willingness not to pursue the most beneficial cost-saving strategies.
Furthermore, the White House is playing ball when it comes to patent expiration, a huge victory for drug and biotech companies. Incidentally, this is partially why I have Healthcare SPDR (XLV) in Zacks ETF Trader.
Insurance Companies Will Survive
Despite talk about a public option, the insurance companies are not going quietly into the night. Not only do these companies have a large number of lobbyists, they are also major employers. This makes dismantling the current system very unrealistic and extremely expensive.
Even if the insurers are forced to make big concessions, they could potentially gain millions in new members. Plus, any reduction in medical costs should ultimately help their bottom lines.
Medical Records and Billing Need to Be Changed
The Obama Administration wants to digitalize medical records. Though having a high initial cost, the benefits are enormous.
Any reform should also directly address medical billing practices. The current system is a network of severely bloated bureaucracies. As a result, doctors have to employ additional staff just to contend with the insurance companies.
Similarly, patients have no idea how to assess what procedures will actually cost them. Not to mention that billing errors are common, partially because of the large number of codes and partially because an insurance's decision as to whether or not cover a procedure is dependent on how well the attending physician explains the reason for the treatment.
Potential winners include Microsoft (MSFT) and Google (GOOG). It also seems logical that other tech conglomerates, such as Hewlett-Packard (HPQ) and IBM (IBM) would be quick to jump into this very large market.
Costs Need to Be Contained
The current health care system is not sustainable. If nothing is done, spending on health care will quickly jump to 25% of GDP. Tort reform is not the answer either, since according to the nonpartisan CBO, malpractice costs account for a very small percentage of overall spending.
A free market system of high deductibles and price conscious consumers is not a viable solution either. As stated above, costs are not transparent. Consumers lack adequate information to quantitatively assess the quality of care.
Finally, there is the problem that many Americans with health care currently are not seeking adequate treatment. We see this in the large number of people with treatable but undiagnosed medical conditions such as diabetes and thyroid disease. If consumers put off regular examinations and treatments in an effort to preserve their health savings account, the potential costs could skyrocket even more in the future.
Any reform needs to reduce the spending on health care as a proportion of GDP. According to the CBO, the legislation considered by congressional Democrats prior to the summer break failed to provide adequate savings, a big problem. If we fail to cut costs, the federal deficit will be balloon and interest rates will soar.
So what is the solution? One idea is a hybrid system that breaks the relationship of getting insurance through one's employer. The Healthy Americans Act does just that. It is a bipartisan bill that has certified by the CBO as paying for itself, and it provides universal coverage. I'm not saying it's the best piece of legislation, but it is a good place to reframe the debate about what should be done.
Potential winners include the U.S. economy.
Americans Need to Make Changes
Finally, any true cost savings will require sacrifices on the part of you and me. Bluntly put, we need to exercise more, eat more vegetables and less meat, drink less soda and floss every single day. Changes to the tax code could easily help push Americans in the right direction. A sin tax on soda and snacks would be a good start.
The government could also help by making weight loss programs tax deductible to anyone whose BMI exceeds a specified level (the deduction is only currently available to those are medically required to lose weight). Additionally, gym memberships and gym equipment should also be tax deductible. Would there be some abuse? Sure, but the overall benefits would still be substantial.
Potential winners would include Weight Watchers (WTW), Lifetime Fitness (LTM) and Nike (NKE).