About a year ago, two friends of mine pulled their money out of the stock market. They weren't oracles or prophets. Instead, they just saw how the economy was deteriorating, saw how the Fed was arranging for the acquisition of Bear Stearns, and saw a great opportunity to put money on the sidelines. They were heeding the wisdom of a true oracle, Warren Buffett of Berkshire Hathaway (NYSE:BRK-A), who teaches Rule No. 1: Never Lose Money.

Last week at the American College of Cardiology meeting, after hearing the Bishop Lecture given by Dr. Len Nichols, director of the New American Foundation Health Policy Program, I thought back to my two friends and their prescient decision. 

The New American Foundation is a Washington think tank, and while you may not have heard about it, you might know some of their leaders: John C. Whitehead, chairman of the foundation's Leadership Council, is a retired chairman of the New York Fed and Goldman Sachs (NYSE:GS). The chairman of the board of directors is Eric Schmidt, CEO of Google (NASDAQ:GOOG).

Dr. Nichols articulated why health care reform is going to happen in 2009. Here are some highlights of his moral, economic, and quality cases for reform from his speech. If you want to read more, his case for health reform is available on the web.

It's the right thing to do
Controlling for other factors, the uninsured are 25% more likely to die than the insured. It is estimated that 22,000 Americans died in 2006, up from 18,000 deaths in 2000, due to lack of health insurance. As the number of uninsured approaches 50 million, and each of us knows someone uninsured, most Americans will find it morally unconscionable that the U.S. is the only industrialized country that doesn't have universal health insurance.

That cost how much?
The middle class is very worried about paying for health care, and for good reason. The share of median family income spent on family health insurance rose from 7.3% in 1987 to 16.8% in 2006. The U.S. spends over 15% of GDP on health care and more than $6,000 per person. Compare that to some of our trading partners like Japan, France, Germany, Canada, and the U.K. They spend between 7.8% and 10.6% of GDP and only $2,300 to $3,200 per person. The United States and U.S. businesses can't afford this drag on productivity.

Quality is job No. 1
Despite spending gazillions of dollars, quality is not what it should be. The World Health Organization ranked the U.S. health system 37th (!) out of 191 countries. Dr. Nichols presented data similar to that published in a February New England Journal of Medicine article that showed wide fluctuations in the amount of money Medicare spends on patients without any demonstrable patient benefit. For example, in 2006, Medicare spent $12,114 on a Medicare patient in Manhattan, NY, but only $7,255 on one in Albany, NY.

What it could mean
A take-home message is that politicians care deeply about keeping their constituents happy and that in 2009, those constituents want to have health care reform, not ideology or rhetoric. Politicians realize that reform will be much more likely to happen in 2009 than in the election year 2010, and there will be a push to get it done. So, what might the consequences of health care reform be?

Large health insurers will almost certainly not fare well with reform. When was the last time you heard a large number of people say, "My health insurance provider is top-notch!"? Uh-huh. That's what I thought. People rarely speak warmly about UnitedHealth Group (NYSE:UNH), Humana, or Aetna (NYSE:AET). Proposed plans to reduce payments to Medicare Advantage Programs will cut into this profitable business line.

A more serious threat would be the development of federal programs providing health insurance. Businesses could purchase health insurance from these programs, presumably at a lower cost, and these programs would compete with the large insurers.

Reform is also not happy news for large pharmaceutical companies, like Pfizer (NYSE:PFE), GlaxoSmithKline, and Merck (NYSE:MRK). There's been lots of publicity that brand-name drugs cost less in other countries than here. Those overseas sales can't all be loss-leaders. In addition, the U.S. Department of Veterans Affairs pays much less for brand-name drugs than Medicare pays for the same drugs. Congress, facing a trillion dollar deficit, may look for savings by changing how much government pays for pills.

My bottom line
Alright. Let's suppose this year that Dr. Nichols is wrong and health care reform is not enacted, or it's enacted in a way that does not materially affect the earnings of health insurers or large pharmaceutical companies. How much could the stocks of health insurers and large pharmaceutical companies rise?

Then let's suppose that health care reform is enacted with meaningful changes, i.e., less moola for lots and lots of folks. How would you expect those stocks to do under this scenario?

From my current perspective, I believe that the risk-reward balance of Big Pharma and health insurance stocks tilts toward the risky side. The world changed in 2008 for financial services companies, and it very well might change in 2009 for health care companies.

Do I think that health care companies will be pummeled this year like financial stocks were last year? No, of course not. I am merely listening to an expert, endeavoring to predict how this year's potential health care reform could affect some sectors, and trying very hard to remember Buffett's No. 1 rule.

GlaxoSmithKline is an Income Investor recommendation. Berkshire Hathaway, Pfizer, and UnitedHealth Group are Inside Value selections. Google is a Rule Breakers recommendation. Berkshire Hathaway and UnitedHealth Group are Stock Advisor selections. The Fool owns shares of Berkshire Hathaway and UnitedHealth Group. Try any of our Foolish newsletters today, free for 30 days

Fool contributor Dr. Michael Cecil is a cardiologist and owns shares of Berkshire Hathaway. The Fool is investors writing for investors. If you would like to discuss the article, drop him a line.