Winners and Losers of a Health-Care Stalemate

In a Wall Street Journal op-ed piece last week, U.S. Secretary of Commerce Gary Locke argued that the scary thing isn't what health care reform will look like, but whether health care reform happens at all.

I buy his argument. Somewhat.

While he fails to propose any ways to reduce health-care costs -- I guess that's not really his job -- Locke does make some good points about how the high cost of health care is slowly killing American businesses, and, by extension, American workers.

For instance, how many American customer-service and information-technology jobs at the likes of General Electric (NYSE: GE  ) , Citigroup (NYSE: C  ) , and Dell (Nasdaq: DELL  ) could have been saved from going abroad if health insurance hadn't risen to nearly 10% of payroll in 2006 for U.S. employees? After all, it was only 1.2% of payroll back in 1960, as Locke notes.

Locke argues that the burden is especially heavy for small businesses, which pay 18% more per worker for the same insurance than their larger brethren. I can't argue with his statistics, but I think Locke's argument starts to break down when he asks, "How many aspiring owners of businesses are locked in jobs they don't like for fear that striking out on their own would cause them to lose their health insurance?"

The lack of universal health care might be keeping us from having one more dry cleaner in town, but I don't think it's having a substantial effect on the level of innovation in the U.S. from newly minted companies.

I doubt health care is a major concern of many entrepreneurs. Were Sergey Brin and Larry Page worried about whether they'd have health care when they left Stanford to found Google (Nasdaq: GOOG  ) ? I'm sure that launching a revolutionary product occupied much more of their time than worrying about health insurance.

Young people can afford to self-insure; they're relatively healthy, and their low net worth means that losing everything in a disaster isn't all that bad. While we don't have universal health care, there is a safety net for the uninsured in cases of emergencies.

As I see it, health-care reform isn't likely to increase the number of companies creating innovative products -- the companies investors are looking for. You could even argue that health-care reform could stifle innovation if it forces companies to spend money on health care that would otherwise be spent on growing the business in its early years.

A stalemate isn't an option
No matter what your view of the current bills working their way through the House and Senate, whether you think a public plan will kill capitalism or enhance it, I think most people agree that something has to be done.

According to Locke, health-care costs are projected to account for about 18% of the U.S. GDP this year. That could grow to 28% in 2030 and 34% in 2040 without reform. Those levels are just insane.

There's only so much consumer spending to go around, and a stalemate in Washington could be a disaster for many companies. For instance, Starbucks (Nasdaq: SBUX  ) and Coach (NYSE: COH  ) could be hit with a double whammy, as they both increase their costs for employee health insurance and lose customers who have less of their paycheck available for discretionary spending.

On the other hand, companies such as Wal-Mart (NYSE: WMT  ) and Southwest Airlines, which pride themselves on giving consumers more bang for their buck, could benefit if there are fewer bucks available because consumers are spending them on health care.

What do you think the chances of a stalemate might be? In the comments area below, let us know whether you agree with Secretary Locke's assertion that health-care costs are killing America.

Google is a Motley Fool Rule Breakers pick. Coach and Starbucks are Stock Advisor recommendations. Dell, Starbucks, and Wal-Mart Stores are Inside Value selections.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool owns shares of Starbucks and has a disclosure policy.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 31, 2009, at 12:13 PM, Richard233 wrote:

    The question has to be tempered with whether or

    not the "reforms" will actually do the job. Consider

    the Hippocratic Oath, "Above all, do no harm", and

    then apply to the changes being proposed.

    Many of the changes, which for political expediency

    would only go into effect at a date that would occur

    sometime during Obama's 2nd term, because it

    would almost certainly derail those chances if it

    happened earlier, are not reversible.

    It's like if the doctor cuts off the wrong leg, and he

    still needs to remove the other one.

    Since they have yet to show that the changes

    proposed will actually save money, its a non-starter

    as far as I can see. Too much money is being

    dedicated for the purpose of insuring non-citizens.

    The answer it, baby-steps.

    1) Time is wasted mastering many different forms

    that vary from insurer to insurer. So, find a way to

    standardize them to start.

    2) Have medical professionals post what they charge

    for each type of treatment so that people can shop

    around for a better price.

    3) Given that the citizens of the united states have

    often paid for the basic research for many of the

    drugs on the market, the US should have a type of

    most-favored nation status. If they sell the drug in

    Canada for $1, they should sell it HERE for a $1.

    The only exception would be for drugs sold to 3rd

    world nations at cost (or very small margin) for

    purposes of humanitarian reasons. The

    manufacturers still benefit from having lower costs

    involved by going to higher volume.

    4) Tort reform. Limit damages when the hospital or

    drug maker accepts liability. Punitive damages

    should go to charity only to give plaintiffs an incentive

    to settle and not waste court time.

    5) Patent reform. No patents for me-too drugs.

    Adding an inert chemical to an existing drug does

    NOT make it a new drug. Drugs that do NOT provide

    a real quantifiable additional benefit over existing

    drugs should not get patents.

  • Report this Comment On August 31, 2009, at 4:51 PM, greenwave3 wrote:

    I am focused right now on identifying undervalued healthcare stocks that have essentially been left out of the latest rally. Some candidates include SUNH, ENSG, AFAM, AMSG, RHB, and others.

    All are poised to do well after the healthcare reform bill is either destroyed or passed. Either way, these companies look mighty mighty cheap.

  • Report this Comment On August 31, 2009, at 7:34 PM, sspickens wrote:

    I'm not sure I buy that "something" has to be done on the issue of costs. Healthcare costs for employers are a part of total compensation. If healthcare were cheaper salaries would go up unless employers are overpaying for labor which cannot be the case in a competitive market economy. So the issue of competitiveness vis a vis foreign labor is a red herring. The more helpful reform would be to reform insurance markets so that individuals instead of employers buy whatever healthcare they want and can afford with the extra dollars released from the employers not having to provide healthcare. healthcare

  • Report this Comment On August 31, 2009, at 8:14 PM, xetn wrote:

    Much of the high cost of health services is attributable to government intervention in almost every area. Real reform would be to get government out and allow a real free market. Examples: eliminate the FDA and allow private testing labs a-la UL. Competition would drive down the cost of testing and likely shorten the review time. Eliminate patents for drugs (or at least shorten their term) and stop the US from subsidizing foreign sales of drugs at much lower prices. Allow purchases of drugs from any place at the cheapest prices. Eliminate licenses for doctors (does not prove any thing), allow non doctors to supply more services at lower costs. Get rid of the AMA or at least its supply limiting function of medical personnel. But most of all having the government involved drives up the cost of everything.

    Health services are not a right, just as food and housing and clothing are not rights. They are services and should stay that way. As a matter of fact, they are very private services between supplier and customer and are no business of government.

    Health services are no different that legal services but no one is proposing to have government controlled legal services, especially since most in congress are attorneys as is the president. By the way, no where in the so-called ObamaCare reform is there any mention of tort reform. Medical malpractice insurance is very expensive and drives up costs of medical service. One way we could end this would be to require arbitration in these cases and eliminate costly jury trials. I know this would greatly reduce the number of trial lawyers but that would be a good thing. After all, malpractice trials are not for justice, but for revenge.

  • Report this Comment On August 31, 2009, at 8:21 PM, xetn wrote:

    Sorry, I forgot to add that insurance costs could be greatly reduced if we were to reduce the cover of common, but costly portions. Things such as coverage for annual exams, office visits etc. What I am proposing is more along the lines of major medical insurance.

    We can compare this with auto insurance where we don't insure for tune-ups or oil changes or tire replacement. These are out-of-pocket items, but if they were included in your auto insurance, it would greatly increase the premiums.

  • Report this Comment On August 31, 2009, at 10:46 PM, asthmadr wrote:

    The cost of health care is rising largely because health insurance premiums are rising.

    Private insurance reimbursement to physicians is very close to what Medicare reimburses. Medicare reimbursement has not increased since 2003 or 2004. So, what your physician gets paid for a procedure provided to you is pretty close to the same thing paid by your insurance in 2003.

    Having physicians post their fees is a red herring. They never get their fee for a procedure. They get, in all cases, what the patient's insurance allows, even if the patient has not made deductible for the year.

    The AMA bought in to Obama's plan, HR 3200, because it does away with the current Medicare Sustainable Growth Factor, which is the reason Medicare reimbursement has not increased. Each year since 2003 or 2004, physician reimbursement has been scheduled to decline. To prevent this, and to be sure physicians continue to see Medicare patients, Congress has held reimbursement at the previous year's level. If this had not been done, and the Sustainable Growth Factor followed, your physicians would be getting about 40-50% less reimbursement than in 2003. If that had happened, and the private insurance companies had followed suit, there would be very few solvent medical practices today.

    As a small businessman, I am quite aware of the cost of health insurance. Interestingly, in the current climate of the discussions of Obamacare, the same policy I bought this year from Blue Cross/Blue Shield will cost 16% less next year.

    Obama likes to say there are 46 million or 50 million or some such number of uninsured people in the US. That's probably true, but only 10-15 million really need insurance and don't have it. Some of these qualify for Medicaid and/or CHIPS. There are some 12-20 million illegal aliens that HR 3200 says won't be covered (or maybe they will - it depends on which part of the bill you read), and there are some 17 million uninsured who make over 50K per year, and 8 million of them make over 75K per year. Some of these could afford health insurance, but choose not to. So, if we make it easier for those who really need insurance to get Medicaid or CHIPS, and write some regulations about coverage for pre-existing conditions (employers are actually holding the insurance companies' feet to the fire over this), and require a certain percentage of premiums to be paid for direct patient care, much of the current problems could be solved.

    Not paying for procedures for Medicare patients so that illegal aliens can be covered (more of them than old people who will vote for Obama) is sinful, but Ezekiel Emanuel, Obama's health care advisor, has recommended withholding elective procedures from senior citizens so that procedures can be provided to younger "citizens." Read his book and professional papers in Lancet and other medical journals.

    Clearly, HR 3200 is designed to gain power over individuals by the Feds, all done under the guise of "health care reform." I recommend reading the bill (it's not easy), and then decide if something as difficult to read as this bill should be the plan for providing your health insurance.

    Google the name "Thomas McGuire," who is the former CEO of United Health Care, who was paid over 400 million dollars over a period of several years in salary, bonuses, and stock options, and, when forced to retire by the SEC because of back-dating stock options, had and additional 1 billion dollars plus of stock options.

    Check the website of any brokerage company to see what kind of profits United, Aetna, Humana, etc., make each quarter. Earnings per share make Dell at its best look like a piker.

    And, yes, I am a physician, and I don't like health insurance companies, but I hate Obama's plan even more.

  • Report this Comment On September 01, 2009, at 8:42 AM, econlibrarian wrote:

    Brian Orelli states that the cost of health insurance

    has risen from 1.2% of payroll in 1960 to 10% as

    of 2006, but seems incurious as to why that might be.

    Could the fact that we instituted Medicare and

    Medicaid during the 1960s, thereby creating demand

    for healthcare services for which there was no

    balancing cost to the consumer, have had something

    to do with this? So by what logic are we supposed

    to believe that further intervention in the healthcare

    market will improve things?

  • Report this Comment On September 01, 2009, at 11:05 AM, miteycasey wrote:

    This is part of capitalism that we live in today. Each CEO must grow profits at all costs and that gets pushed onto the consumer.

    If insurance companies want to grow profits they have to raise premiums. Then figure in it's the government and companies that subsidize the premiums versus the individual and, wallah, this is what happens.

    I don't see what separate this from all other capitalist endeavors.

  • Report this Comment On September 01, 2009, at 6:57 PM, Kassym wrote:

    There are some very interesting suggestions here. Now, if the Republicans could just try to offer some solutions rather than just trying to kill all reform maybe we could have something. Tort reform may help a little but the insurance companies have gotten so greedy that they would not lower costs just because they couldn't be sued for so much. They would just count more of their money. I do feel bad for the Doctors because I can see where the insurance companies do not pay them much compared to what they are charging. That could be why they have to charge so much because the regular insurance companies pay only a fraction of the bill or deny the claim and the doctor has to wait for the patient to come up with the difference. Good luck. In the old days we paid the whole bill and then sent in a claim and the insurance company paid us back at least 80% of what we paid. The doctors are now lucky to get 50% and I can't afford to pay the whole bill myself. The government is not the problem. It is the insurance companies and the drug companies that have just gotten so greedy so they can pay their executives huge salaries and bonuses. I just hope the government can figure out a plan that will make a difference. You know that there is NO PLAN YET. They need to consider the facts and not the misinformation begin spread by the lobbyists and the shock jocks (like Limbaugh & Beck that make up lies and love to cause trouble to get attention). HR3200 has been spun out of control and it is not even the final bill. More suggestions and less yelling and screaming nonsense would helpful.

  • Report this Comment On September 02, 2009, at 2:00 PM, Jarrhedd wrote:

    If you're looking for Republican suggestions Kassym, go over and check out Newt Ginrich's Center for Health Transformation. Also, check out Senator Paul Ryan's articles.

    Ask yourself this as well, as Newt points out, why is it that ONE dentist in Florida can charge Medicare for 900 procedures in one day AND get paid for it? There is out and out fraud in the system that needs to be rooted out.

    No where in the current bill is there any language addressing 'fraud reform'. But, there is language suggesting that 'funds' can be pulled from individual bank accounts.

    Thanks for playing, try again.

  • Report this Comment On September 07, 2009, at 11:34 AM, DeborahCalvert wrote:

    Reform healthcare before we institute Universal healthcare. My mother lived in a Sun Healthcare Group (SUNH) skilled nursing facility in Newport Beach, California where the operators were committed to a Calif State Injunction yet violated it repeatedly and caused her death. This went on for over one year before her death, she was taken out of the facility the final eight months of her life to mostly live in an acute care hospital.

    Even w/ dbl pneumonia SUN Healthcare forced her 2 get up and dressed by 5:30am, I found out on a surprise visit, as she was then made to sit in the hallway 2 wait for the dining room doors 2 open 2 more hrs, b cuz SUN understaffed and simply put, 5-7 CNAs that arrive at 7am cannot dress 59 patients in one hour. Sun's Medical Director interceded stating no sick patients were 2 be made 2 sit up ever again. Common place: Opps you fell out of your wheelchair head first while no supervision in Dining Room? Sun didn't file accident report; Thirsty? Back in an hour; Need bathroom? we use diapers here; Hungry? great food; U need a Dr? Call 911; Fever? r thermometers broke; Hot? HVAC condemned by State; Cold? HVAC broke; Can't breathe? No Ventiliation? Did I mention the HVAC is condemned? BTW ur oxygen tank ran out -no staff 2 monitor oxy tanks; Looks like u had a stroke! r b/p monitors broke, now u'll never swallow again -sorry; opps u contracted MRSA from us from all the overuse of antibiotics for urinary tract infections -so sorry 2 tell u this but now u will die. Seven months later our mom was dead from this callous behavior.

    Calverts sued SUN but were cheated out of treble damages b cuz we could prove SUN's willful misconduct. I have the letter SUN wrote me it was OK w/ them not 2 have a working HVAC sys 2 patients rooms, while under an existing injunction from the State of Calif barring SUN from ever having a broken HVAC system since they killed patients in a Burlingame, Calif facility in 2000. The CEO and Dr Hunker could have been terminated 4 good cause. Instead the CEO gave threatening messages to me during mediation which intimidated me and I signed off on only a fraud charge. I sued that attorney for malpractice when I regained my strength from pancreatic cancer surgery seven months later. He died 2 weeks later. Probably thought I'd die. Think he was stressed I'd have a tape recording of those threats in mediation?

    In June, 2009, the board of directors of Sun Healthcare Group thru the attorney firm Fonda & Fraser LLP Anaheim, California, has been informed of this possible criminal behavior.

    Deborah Calvert, Newport Beach, CA

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