I recently argued that the rising demand and cost of health care, however scary, could also provide a golden opportunity for our struggling economy. As the weight of our economic woes ultimately falls upon our collective shoulders, it only makes sense that we ensure the future rests on healthy backs.
Princeton University's Prof. Uwe Reinhardt, one of the nation's leading authorities on health-care economics, calls the sector the "strongest economic locomotive working for us." He estimates that health care will be one-fifth the size of the U.S. economy by 2015, and believes this is an ideal time to expand health insurance coverage for the uninsured. I recently interviewed Prof. Reinhardt about how understanding the state of health care may help us diagnose tomorrow's market winners today.
Andy Louis-Charles: Energy independence vs. universal health care -- which would provide our economy a bigger bang for the taxpayer buck?
Uwe Reinhardt: For an immediate stimulus, covering the currently uninsured would have the fastest impact. Somewhat longer-run stimulus could come via spending on health information technology, which would enhance the quality of care in this country, and also could be used to eliminate wasteful spending.
Investments in alternative energy sources are bound to have good long-run benefits, but would not be likely to produce short-run stimulus.
Louis-Charles: So is a company like Wal-Mart (NYSE: WMT) part of the health-care problem or solution? Are they a health-care leech that benefits from nudging their employees onto government-funded health programs, or the Henry Ford of the industry, an innovator providing low-cost prescriptions and access to in-store affordable health clinics?
Reinhardt: Wal-Mart is both. On the one hand, they have heavily relied on public funding of the health care for their employees, although in recent years they have made great efforts to provide insurance as well. On the other hand, however, they really have made a contribution by finding ways to bring lower-cost drugs and primary care to Americans -- especially the uninsured.
Louis-Charles: Are medical innovations and technology the answer to affordable health care? If they are, which do you see packing the biggest economic punch?
(A) Pioneering surgical methods, such as the surgical robotics equipment produced by companies like Intuitive Surgical (Nasdaq: ISRG ) ?
(C) Cost savings in information technology, like those provided by health-care software systems provider Quality Systems (Nasdaq: QSII ) ?
(D) Information technology companies like Google (Nasdaq: GOOG ) or Microsoft (Nasdaq: MSFT ) , and their attempts to "compile, protect, and unify comprehensive health care records"?
Reinhardt: Health care traditionally has been highly labor-intensive -- hence, expensive. But with the number of working-age adults per elderly declining from about 3.5 now to about two by 2025, we simply cannot afford to maintain this labor-intensive style. Our only hope is the emergence of labor-saving technology -- pharmacological, electronic, nanotechnology -- that can substitute for this expensive labor input. Items A and B above fit this bill. [As for C:] So far, more sophisticated software has been an enabler of ever more perplexing complexity on health care administration. It has not been cost saving overall. I am not so sure about item D. Microsoft itself has recently released a study on cyberchondria. The Internet may save costs or be a cost driver.
Louis-Charles: What is the best investment opportunity in health care today?
Reinhardt: The health system now is this country's economic locomotive and largest job creator. It has boundless employment opportunities. For capitalists, health information technology will become a fertile field for investment, as President Obama considers it a first target for "infrastructure investment." Cost-reducing medical technology of any kind will be a winner. Technology that buys added clinical benefits at enormous costs -- e.g., specialty drugs -- may have a tougher time selling [its] innovations. Finally, if your money is invested in Medicare Advantage Fee-for-Service plans, now would be a good (or late) time to get out. Power plants in Cuba strike me as a more promising deal.
Our interview continues in Part Two: The Biggest Idea in Health Care