The Problem with the Healthcare Debate

 | Oct 15, 2013 | 1:30 PM EDT
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The single biggest conundrum concerning the debate that's been increasingly ratcheting up for decades in the U.S. about how to provide and pay for healthcare is that the people who support a national or quasi-national system of insurance should be opposed to it and the people opposed to it should be in support of it.

In the past 50 years healthcare as a percentage of personal consumption expenditures in the U.S. has grown to about 16% from about 4%. People are spending four times as much of their income on healthcare as they did two generations ago.

In the same period of time, expenditure on healthcare as a percentage of GDP has grown to 12% from 3%, not including what the government spends.

As a percentage of private GDP, it has grown to 18% from about 4. It's grown per capita and per household from almost nothing to $6,000 and $16,000 respectively.  The average family now spends almost $16,000 per year on healthcare.

Health care as a share of average hourly earnings of working class people, the bottom 80-90% of the income-earning population, has increased 1000% in the past 50 years, 200% in the past 25 years and 50% since 2000, in real terms.

This is unsustainable and has been for a long time. A federal response with the goal of mitigating the continuing trajectory has been warranted. The competitive viability of the U.S. economy is at risk otherwise.

But there's a problem.

Between a half and two-thirds of healthcare spending, including government, is allocated to about 10% of healthcare recipients and the majority of the necessity for that is borne out of conscious choices: smoking, alcohol consumption, poor diet and a sedentary lifestyle.

Since most people vote their pocketbook, it is most logical to assume that the 90% spending on and receiving 50% of health care, the healthy, would not vote for a national healthcare system that is essentially a transfer of wealth to support the 10% receiving the other 50%, the unhealthy.

In the most general terms, the 90% are concentrated in liberal/Democratic, urban, blue-state areas and the 10% are in the conservative/Republican, more rural, red-state areas.

From a personally pragmatic standpoint it is logical that the liberals/Democrats would vote against a national healthcare system and the conservatives/Republicans for it. But the exact opposite has happened, of course.

This is illogical unless the new national system next addresses the subsidy being provided by the healthy to the unhealthy. Not only is it illogical, but Obamacare actually increases the subsidy by now ensuring healthcare insurance to pay for the poor lifestyles.

The most logical result in the immediate is that the costs of healthcare as a percentage of GDP and the other measurements referenced earlier will get worse. 

Not only is this a boon for the healthcare and insurance industries, it is their salvation as the flat Treasury yield curve and costs of both to consumers would have caused financial crises in both industries without it. 

The most logical way of offsetting this growing disparity, once it is empirically evident, will be to begin to punish poor lifestyle choices by implementing punitive federal taxes on tobacco, alcohol and fatty foods. 

From there a national program of fitness for adults may begin to be viewed as a politically rational next move, with annual medical checkups and the reporting of the results to the government being implemented. Don't think it can't happen. 

But coming back to present, the necessity for addressing the increasing costs to the economy and society of healthcare warranted a national response that will benefit the healthcare and insurance industries and their stock owners for the foreseeable future. 

Putting politics aside, the easiest way for investors to participate in the upside to the healthcare industry is through the stocks: UnitedHealth Group (UNH), HCA Holdings (HCA) and the Health Care Select SPDR (XLV).

They've all performed brilliantly this year and I expect that to continue.



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