As we know from last Friday, the government passed a budget to keep itself operational until Thursday. Considering what the Republicans and Paul Ryan have put up as the alternative budget to Obama’s we can sort of expect that perhaps the final budget will be in between the two. Unfortunately, it just increases the uncertainty of healthcare’s future in the US. To summarize, if Ryan has his way, Obama’s health reform would be effectively repealed. Ryan’s budget also makes large cuts to Medicare and Medicaid spending. It seems to have dawned on people that perhaps we don’t have the money to spend on everybody to get health care coverage and services.
This unfortunately spreads deep into the health sector. On insurance side, companies like UnitedHealth Group and Humana have a large number of Medicare enrollees through part D. On hospital and physician side, Medicare is a large part of their reimbursement and on pharma/med device, Medicare and Medicaid enrollees also make up a significant share of the revenue.
It is tough to gauge however what we should do in terms of our healthcare portfolio. In the case of the Japan quake, our portfolio took a hit during that week but that event is independent of how the healthcare system functions. So we waited it out and our portfolio rebounded. This budget issue in Washington however can fundamentally change how the healthcare system operates and that way seems to point down the path of cost savings and overall less spending. At the same time however, the Ryan plan proposes to privatize Medicare and/or give vouchers to control costs and let beneficiaries control their healthcare. Part D has been wildly successful for private insurance and may also be successful if private insurance manages Part A and Part B also. Overall, a tough call on the portfolio given too much uncertainty. We had considered liquidating on Friday and may end up doing so this week to see how things play out. As mentioned, this is not just a blip but a potential change to how things fundamentally work and how the different healthcare sectors interact with each other.