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Winners From The Slowdown In U.S. Healthcare Spending

|Includes: Aetna, Inc. (AET), ANTM, BAC, CI, CVX, M, T

According to a recent report from the Centers for Medicare and Medicaid Services, total U.S. healthcare spending rose 3.9% in 2011. This marks the third year in a row healthcare spending has increased by just 3.9%, which is in-line with overall GDP and inflation growth for the economy as a whole. For the period between 2009 to 2011, healthcare spending has remained at 17.9% of GDP. The last three years represent the slowest rate of healthcare spending growth in the 52 years since the release of the report. Healthcare spending grew at a 4.4% clip in 2008, which was the previous lowest level of increase. For a point of reference, in 1970 total healthcare spending represented only 7.2% of GDP.

There is a debate about why healthcare spending is now growing in-line with the overall economy rather than growing much faster than the economy as a whole. Some point to the economic slowdown as the reason for the decline citing an increase in the Medicaid rolls. But healthcare spending slowed markedly in 2008 and the economy didn't enter a deep slump until the second half of 2008. Some point to provisions in the Affordable Health Care Act (known as ObamaCare), but that was only enacted in 2009 and many of its provisions are delayed until 2013 and 2014. Unfortunately, others point to a recent slowdown in innovation and medical breakthroughs with fewer products enjoying patent protection from competition. Whatever the combination of reasons, a trend is now firmly established that runaway spending on healthcare is a thing of the past and not of the present. Of course healthcare spending could always resume a faster pace of growth than the economy as a whole in the future.

Health Insurance Companies have been big winners from the slowdown in healthcare spending. The reduced payouts have led to an increase in profits for the largest insurance companies over the last three years like Wellpoint (WLP), Aetna (NYSE:AET), and Cigna (NYSE:CI). But some of the biggest and often over-looked winners of reduced healthcare spending are large self insurers like AT&T (NYSE:T), Chevron (NYSE:CVX), Macy's (NYSE:M), and Bank of America (NYSE:BAC).

However, by far the biggest winner from a reduction in healthcare spending is the federal government and the U.S. Taxpayers. With the aging of the Baby Boomers federal healthcare spending is projected to rise from 44% of total healthcare spending to 50% of total healthcare spending by 2020. The Centers of Medicare and Medicaid also estimated healthcare spending would grow at a rate of 5.8% between 2010 and 2020 and the cost of federal spending on healthcare as a percentage of GDP would more than double by 2050. But the current actual healthcare spending growth rate of 3.9%, which more importantly is in-line with overall economic growth, brings those projections into serious question. It is possible we no longer have a long term federal deficit problem due to rapidly rising healthcare spending and most of us don't know it.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.