According to the annual healthcare spending report that is put together by the Centers for Medicare and Medicaid Services, Americans spend $3 trillion (yes, with a T) on healthcare every year. That spending is likely to head higher as aging baby boomers require additional treatment and next generation drugs command higher price tags, but just how much does the average person pay for healthcare every year, and what companies are likely to benefit from ever-increasing healthcare costs?
How much the average American pays
Every year, the CMS does a deep dive into historical healthcare spending and provides projections for future healthcare spending. In its most recent report, the CMS details real time spending through 2012 and offers up estimates for healthcare spending through 2023. And those estimates are nothing short of frightening.
According to the CMS, the average American spent $9,596 on healthcare last year, up significantly from $7,700 in 2007. That means that Americans are increasingly under pressure to pay for their medical costs and sadly, the situation is only expected to worsen. Healthcare spending per person is expected to surpass $10,000 in 2016 and then march steadily higher to $14,944 in 2023.
Which Americans spend the most on healthcare?
Using 2009 data, the most recent year for which this information is available, residents of the District of Columbia spend more per person on healthcare than residents of any state in the nation. Excluding D.C., the five states where Americans spend the most on healthcare per resident are Massachusetts, Alaska, Connecticut, Maine, and Delaware.
Looking at the data by region, residents of the New England and Mideast regions of the country spent 29% and 17% more than the average person nationwide, respectively. Why? Because people in these regions tend to be older and require more care than people who live in other parts of the country. Since the Rocky Mountain and Southwestern states have younger populations, spending per person is lower there. In those two regions, the average person spends about 15% less than the average person nationwide. Overall, the five states where spending on healthcare is the least are Nevada, Idaho, Georgia, Arizona, and Utah.
Less surprising may be how healthcare spending breaks down by age. People between the ages of 65 and 84 spend 3.5 times as much annually on healthcare than people between age 19 and 44.
Investing in healthcare
As overall healthcare spending increases, healthcare companies are likely to see their sales and profit climb, and that could mean that healthcare stocks are a solid bet for long-haul investment portfolios.
If you're interested in owning stocks that benefit from rising healthcare spending, a good place to start may be healthcare insurers. The CMS estimates that health insurance premiums will climb by 5.4% per year from 2016 to 2023. Thanks to a combination of higher insurance premiums and an increasingly insured population due to healthcare insurance reforms, insurers could have solid revenue tailwinds for years. If so, large insurers like UnitedHealth Group (NYSE:UNH) and Anthem (NYSE:ANTM) could be a good bet for investors.
Investors may also want to consider owning hospital stocks. The CMS projects that spending on hospital-based healthcare will grow by an average 6.2% per year between 2016 and 2023. That spending growth, driven by aging baby boomers and an increasingly insured population, should boost results for hospital operators such as HCA Holdings (NYSE:HCA) and Community Health Systems (NYSE:CYH)-- two of the biggest hospital operators in the country.
Investors willing to take on a bit more risk in their portfolios might want to also consider investing in drugmakers, including biotechnology stocks. Spending on prescription medicine is supposed to grow by 5.4% per year between 2016 and 2019 and then to grow by 6% per year between 2020 and 2023. If those estimates are right, then investing in companies like Celgene Corporation (NASDAQ:CELG) could make sense. Celgene's cancer and autoimmune drugs generated sales of $7.7 billion last year, and the company thinks that its sales could reach at least $20 billion by 2020.
Tying it together
Even if you're currently spending less per year on healthcare than the average American, your spending is likely to climb significantly as you get older and new treatments become available. Since the increase in healthcare spending poses a risk to your financial security, it may make sense to think about ways to hedge ever-increasing healthcare costs and seek to profit from investing in healthcare companies like insurers, hospitals, and drugmakers.
Todd Campbell owns shares of Celgene Corp and Community Health Systems. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may or may not have positions in the companies mentioned. The Motley Fool recommends Anthem, Celgene, and UnitedHealth Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.