The Key to 'Health Care Reform Version 2.0'
Two hours of insults on live TV... What the 'radicals' get right about U.S. health care... Why a single-payer system won't work... The key to 'Health Care Reform Version 2.0'... One company that would thrive under this system...
Maybe... just maybe...
The six remaining viable candidates for the Democratic presidential nominee got together Wednesday night to undermine and insult each other for a couple hours on live TV.
And they put on an entertaining show...
As the barbs began to fly during the debate at the Paris Theater in Las Vegas, I (Thomas Carroll) noticed the first issue that was brought up...
It wasn't a direct attack on billionaire entrepreneur Michael Bloomberg or his wealth... It wasn't climate change... It wasn't foreign policy... And it wasn't Bloomberg's allegedly terrible behavior toward women in his employ...
Nope.
Self-proclaimed socialist Bernie Sanders got the first turn at the mic. And the septuagenarian frontrunner grumbled at the cameras...
For 100 years, from Teddy Roosevelt to Barack Obama, this country has been talking about the need to guarantee health care for all people. And yet today, despite spending twice as much per capita... as any other major country on Earth...
We got 87 million [people] who are uninsured or underinsured...
We got over 60,000 people who die every year because they don't get to a doctor on time...
We're getting ripped off outrageously by the greed and corruption of the pharmaceutical industry, which in some cases charges us 10 times more for the same drugs because of their price-fixing...
500,000 people go bankrupt every year because they can't afford medical bills...
It was all about health care.
Sanders jumped right in and talked about his "Medicare for All" plan. "Maybe... just maybe," he said, "we should join the rest of the industrialized world [and] guarantee health care as a human right."
This rant just underscored what we've been saying for months...
Health care will be a deciding factor in November – if not THE deciding factor...
But don't take my word for it...
The Kaiser Family Foundation – one of the best sources of independent health care analysis – recently published a study about the issues motivating Democratic voters.
Health care was the top concern.
The options being discussed are polarizing. They're at opposite ends of a spectrum of possibilities.
The "radicals" – Sanders and Elizabeth Warren – are promoting aggressive, single-payer platforms that would drastically change our $3.5 trillion health care system... and upend or eliminate the business model for hospitals and insurers, among other facets of the system.
As I've said before, Warren and Sanders aren't crazy... Our health care system is broken.
But switching to a single-payer system would throw the entire economy into upheaval...
Health care represents 18% of U.S. gross domestic product. Big changes to the health care industry would do more than just "rock the boat."
Meanwhile, the "moderate" candidates – including Joe Biden, Pete Buttigieg, and Amy Klobuchar – all have health care plans that are closer to the status quo. They build upon the current law of the land – the Affordable Care Act (also known as "Obamacare").
President Donald Trump doesn't say much about his plans for health care if he were to win a second term. But he'll likely end up on a path leading to something that looks a lot like a watered-down version of Obamacare.
The key thing to remember as the campaigns try to envision a future health care system...
Most voters like the so-called 'public option'...
A critical point in the Kaiser study is that only a small number of people are hardcore supporters of a single-payer or Medicare for All plan. Even if Democrats sweep the elections in the White House and Congress, it would be difficult to pursue a single-payer system.
You may remember from President Obama's health care reform efforts...
A public option would be a government-run (or at least, government-funded) health plan that anyone could join and receive benefits. It would compete with the for-profit health care providers and keep them honest.
But Obama's plan never made it. Politicking left it on the cutting room floor.
In my view, it's coming back and will be the next big health care topic to influence stocks.
But there is an important nuance to consider. And it's a nuance that we can profit from when looking at the longer term.
In the near term, a public option will be talked about as an irrational competitor to the current system of health insurance companies – even the nonprofits like Blue Cross Blue Shield. It will use the weight of the federal government to provide below-market premiums. Employers and individuals alike would flood such a program.
And it will wreak havoc on any health-services organizations – for-profit or not. This is our opportunity.
(It's important to note... many nonprofit health care companies – like hospitals – are quite profitable. Steven Brill chronicled this aspect in his excellent book, America's Bitter Pill.)
But here's the nuance...
If we look closely, we might already have a viable solution...
A public option of sorts already exists for seniors and the poor.
You see, Medicare and Medicaid both have vastly privatized over the past 20 years...
Federal money has shifted from unmanaged, inefficient programs to private companies incentivized to develop access programs that steer patients to the proper place of service. Smart investors made a fortune on these stocks.
These shifts are likely to continue with what I call "Health Care Reform Version 2.0."
That's why I think Sanders should stop talking about Medicare for All. Instead, he should be promoting Medicare Advantage for All...
Medicare Advantage is a successful partnership between the federal government and private health care companies. It merges financing and regulation from the government with efficiency and innovation from the private sector.
And... almost 40% of Medicare-eligible Americans already get their benefits this way.
These plans cover all the stuff Medicare requires... And they're efficient enough to include extras like vision, dental, and various wellness programs.
Wouldn't this be a great starting point for health care reform discussions?
Again, Sanders should be talking about Medicare Advantage for All.
Medicare for All is not politically viable as a first step to a better health care system. But Medicare Advantage for All is something that lawmakers could get behind.
It would represent a public-private partnership that maximizes the weight of the federal government and utilizes the existing and innovative system of health care delivery.
The companies that currently run these programs would stand to make billions of dollars in revenue, and earn a tidy profit for their efforts.
One such company we have known for a long time is Centene (CNC)...
Centene started 20 years ago as a small company serving state Medicaid programs. It's currently a government-focused powerhouse with solutions across many health care needs.
This company could be a great platform to building a much better health care system...
One that is uniquely American. One that maximizes health equality and maintains the efficiencies and innovations of a capitalist society.
We'll undoubtedly hear more about health care reform as the election calendar marches forward to November. The current polarizing ideas may begin to meet in the middle.
As we get a better sense of what the future may look like, there will be many investment ideas that present themselves... if you know where to look.
I've devoted my career to the idea that health care is ripe for investing. This was true 30 years ago... And it will be true 30 years from now.
The U.S. health care system needs help. But it won't come in the form of a purely single-payer system. The solution will combine the best of both worlds.
Along the way, there will be many opportunities to invest and profit... if you understand the system.
New 52-week highs (as of 2/20/20): AllianceBernstein (AB), Albemarle (ALB), Blackstone Mortgage Trust (BXMT), Sprott Physical Gold & Silver Trust (CEF), DB Gold Double Long ETN (DGP), Digital Realty Trust (DLR), SPDR Gold Shares (GLD), Hannon Armstrong Sustainable Infrastructure Capital (HASI), Home Depot (HD), Intuitive Surgical (ISRG), iShares U.S. Home Construction Fund (ITB), Kinder Morgan (KMI), Nuveen Municipal Value Fund (NUV), NVR (NVR), Pan American Silver (PAAS), Parker-Hannifin (PH), Service Corporation International (SCI), Sea Limited (SE), SolarEdge Technologies (SEDG), SilverCrest Metals (SILV), Square (SQ), and Wheaton Precious Metals (WPM).
A quiet day in the mailbag. We'd love to hear your experiences with the U.S. health care system. As always, you can send your thoughts to feedback@stansberryresearch.com.
Happy investing,
Thomas Carroll
Baltimore, Maryland
February 21, 2020