Baldwin Investment Management

Healthcare For All…

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It is a nice sentiment. It is an altruistic sentiment. It is a naïve sentiment, if it is expected by voters to be accomplished in the near term. In the U.S. we have a healthcare system which is envied around the world for its “cutting edge” technology – but derided because of its cost and surprisingly mediocre life expectancy results when compared to other systems around the developed world (think Europe). The cost of healthcare in America is always an election item. Debate is always “hot and heavy” and the demagoguery reaches new heights with each new political cycle.

No doubt Americans pay a lot for their health and no doubt not every dollar is spent well. But the cost of discovery is high. Further, Americans expect the best. They do not tolerate “third world” medicine and we have been schooled that the best is an American right, not privilege. The U.S. healthcare system which has developed is huge (18% of U.S. GDP, employing millions of people) and complex. It is also well entrenched and politically powerful. There is a hospital in every congressional district with doctors and nurses who vote reliably. The payment scheme, developed generations ago, is convoluted – utilizing 3rd parties like insurance companies and government plans like Medicare and Medicaid. Different plans pay differently. Generally, private insurance plans (think Aetna, Cigna, Blue Cross, etc.) pay more than the government plans for the same medicines, surgical procedures or physician visits.

Go figure!! The Bernie Sanders acolytes want all payments to go to the lowest rate available – Medicaid/Medicare. But such a payment schedule would bankrupt the American healthcare system, especially if the transition were accomplished in the short term. Gone would be “cutting edge” healthcare which Americans have come to expect. Obviously, those in the health business want payment rates closer to the private payers. But this is also untenable as costs continue to rise, without much abatement. Thus, a compromise, so long sought, must be found. Obamacare was not “it”. Medicare for all is not “it” because our federal government would bust its budget and the U.S. taxpayer is more than likely unwilling to “pick up the tab”. We do not have an answer, but there are too many bright minds working on the issue to doubt that an answer will be found. Healthcare stocks have been hurt by worries that their world will be “turned upside down” by the ultimate solution. Oppositely, we think the U.S. healthcare industry will be an integral part of the response and as a consequence, we believe there is an opportunity in many healthcare equities at current prices.