The next U.S. presidential election is 19 months away and politicking is already in full swing. An issue that was raised by candidate and Senator Bernie Sanders in the 2016 presidential campaign has come back with a bang. It is “Medicare for all.” Sanders, and now several others, are proposing that all Americans be covered by a health care program run by the U.S. government instead of private insurance under the current Affordable Care Act (aka Obamacare). While this may or may not be a good idea for taking care of sick people, investors need to wonder, would “Medicare for all” kill your health care investments? Just having the issue mentioned in the early days of the 2020 campaigns has driven down health care stocks. Here are the news and some thoughts about the healthcare system, Medicare for all, and how Medicare for all would kill your health care investments, or not.
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Health Care Stocks and the Possibility of Medicare for All
Bloomberg writes about how health stocks crumble on the possibility of a “Medicare for All” solution to America’s health care issues.
“Presidential primary politics,” said Evercore ISI analyst Michael Newshel, are “more in focus than fundamentals.”
The slide began in earnest on Tuesday when UnitedHealth Group Inc., [which is] treated by investors as a bellwether for the insurance sector, waded into the debate over “Medicare for All,” which would expand government-administered coverage to most of the population and rewrite the businesses of U.S. health insurers, hospitals and doctors.
While it’s a longshot to become law despite the backing of some contenders for the Democratic presidential nomination, the proposal has the power to upend company stock prices. Together, the shares of hospitals and insurers lost $28 billion in market value on Tuesday, according to data compiled by Bloomberg. The Tuesday losses capped the worst five-day stretch since 2011 for health insurers, despite UnitedHealth reporting earnings that beat analysts’ estimates and raising its 2019 forecast.
How Health Care Companies Are Affected by the Threat of “Medicare for All”
Companies like UnitedHealth Group Inc. have invested heavily in systems to manage the costs of health care and, in fact, how health care is delivered. This money has been spent and complex systems are in place to evaluate doctors, hospitals, medicines, and treatment plans for effectiveness and efficiency. In other words, these folks have spent decades now looking critically at how health care is delivered and forcing changes by altering payment based on treatment results and costs. In fact, UnitedHealth has such a treasure trove of information that they sell their expertise to other health insurers and managed care companies to help those folks provide better care while reducing costs. And, the end result for UnitedHealth Group has been higher profits and a share price that went up ten-fold in the last decade (before the recent “Medicare for All” scare).
Why Does Sanders Want Medicare for All?
Although roughly half of the 40 million uninsured, non-elderly, American get health insurance under the Affordable Care Act, there are still around 25 million uninsured younger Americans and the numbers went up last year. Sanders wants the USA to use a system like Canada, England, Germany and other developed nations have. Each of these countries has a universal health care system. Senator Sanders chooses to call his approach “Medicare for All” instead of a universal health care system, but they are one and the same. In these systems, well-to-do individuals can have private insurance and go to private doctors and private hospitals but the vast majority of their citizens receive the majority of their care under the government system.
Would “Medicare for All” Kill Your Health Care Investments or Not?
The concern is this. If such a plan were to come into being in the USA, the health care insurers and managed care companies like UnitedHealth Group would lose business, but how much? In the USA two-thirds of “insured” people have private health insurance. Because 8% of Americans are still uninsured, it means that about 60% of Americans have private health insurance. In Canada that number is about 27% for folks with comprehensive coverage but 70% of Canadians have some degree of supplemental coverage as the Canadian system covers about 70% of health care costs.
Thus American health companies would lose more than half of their clients that have complete coverage but could pick up clients for “supplemental” policies if a transition to a “Medicare for All” system in the USA followed the Canadian model.
(HealthAffairs.org and Health Care in Canada: Wikipedia)
As a quick glance at the figures for private health insurance in Canada versus private health insurance in the USA demonstrate, there would still be a place for private insurance, and that niche would probably grow and become more profitable due to the nature of universal health care systems.
Universal Health Care Cost to Taxpayers will Protect Your Healthcare Investments
We recently wrote that the Trump tax cut was a bust for investment and hiring but nevertheless will have substantially increased the national debt to $22 Trillion. The interest on an ever-increasing national debt is currently at $479 Billion a year. Servicing all forms of U.S. debt takes 10% of the yearly budget.
(Interest on the National Debt: The Balance)
Bloomberg quotes a study saying that “Medicare for All” would cost $32.4 Trillion over ten years.
The latest plan from the Vermont independent would deliver significant savings on administration and drug costs, but increased demand for care would drive up spending, according to the analysis by the Mercatus Center at George Mason University in Virginia. Doubling federal individual and corporate income tax receipts would not cover the full cost, the study said.
Sanders’ plan builds on Medicare, the popular insurance program for seniors. All U.S. residents would be covered with no copays and deductibles for medical services. The insurance industry would be relegated to a minor role.
Your Investment in Health Care Will Be Protected by the Definition of “Non-essential”
The problem with universal health care systems is that they need to be managed in such a way as to deliver “essential” medical services to everyone at an affordable cost to the government. The problems in such systems come from what ends up be defined as “essential.” In the Canadian system, drugs and psychological/psychiatric care are not covered! “Essential” is too often defined by the economic needs of the system and the willingness of taxpayers to pay for the health care of others.
Another issue is that “non-essential” health care services tend to be used to a greater degree when one does not need to pay any money to receive that service. The Canadian system uses “co-payments” to discourage excessive use of non-essential services. This would not be a feature of the Sanders proposal as it currently stands.
The bottom line is that a universal health care system is expensive to operate and such systems tend to require citizens to pay larger and larger shares of the cost out of their own pockets or pay for private insurance to cover against excessive risk.
So, would “Medicare for all” kill your health care investments? We don’t think so.