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Health Care's costs & the misguided debate

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In recent stories I have highlighted several health care stocks that I think would be strong candidates for small portfolios (Part 1 and Part 2) that would be safe and pay high yields. These include: Johnson and Johnson (NYSE: JNJ), Abott Laboratories (NYSE: ABT) and Novartis AG ADS (NYSE: NVS). I have been thinking about these companies and how others will fare in the health care debate.

While Washington debates the merits of various health care bills, the health care companies lobby to influence the outcome. Businesses and employees are resistant to taxing current health care benefits but very few people are opposed to taxing those that get big paychecks.

I think we are heading down the wrong path regarding health care "reform" once again. There is no question that most people want to improve health care in many respects, including but not limited to, the quality, cost, and delivery, but the devil is in the details and we may end up no better off than we started except of course with more complexity and greater cost.

Complexity translates into bureaucracy and waste when the government gets involved. However, I am not opposed to government involvement when it is required for setting guidelines, policing the system, and perhaps creating a safety net. Does anyone believe that government is remotely capable of simplifying anything? I think history thoroughly undercuts this notion.

Something that seems to have escaped the debate altogether is how much of our total GDP should be spent on health care in the aggregate, not just what the speculated cost of current reform ideas might be and how to pay for them.

Is there a maximum percentage of our resources that we as a nation should spend on health care? Why are we ignoring that we are spending an ever increasing amount of our total resources on health care without any discussion about what is appropriate? What is affordable? We speak of affordability but that is a nebulous idea.

The following excerpt is from a 2009 fact sheet published by the National Coalition on Health Care:
  • By several measures, health care spending continues to rise at a rapid rate and forcing businesses and families to cut back on operations and household expenses respectively.
  • In 2008, total national health expenditures were expected to rise 6.9 percent -- two times the rate of inflation.1 Total spending was $2.4 TRILLION in 2007, or $7900 per person1. Total health care spending represented 17 percent of the gross domestic product (GDP).
  • U.S. health care spending is expected to increase at similar levels for the next decade reaching $4.3 TRILLION in 2017, or 20 percent of GDP.1
  • In 2008, employer health insurance premiums increased by 5.0 percent – two times the rate of inflation. The annual premium for an employer health plan covering a family of four averaged nearly $12,700. The annual premium for single coverage averaged over $4,700.2
These are just a few tidbits. It is worth reading the whole document. There are many aspects to the health care dilemma and the issues and priorities are different for different people.

Something that I have been thinking about lately has to do with the scale of the system as it stands now and how comparisons between the United States and other countries may not be fair or reasonable.

Comparing the US to Canada, or Great Britain, or Germany, Denmark, Finland or any of the usual nations is not appropriate. Comparing a nation with populations that are 10% to 25% of our size does not seem right. How does the US measure up to China, India, Indonesia, Russia, or Brazil? Yes, I know this seems misguided too because we consider these to be poorer, less industrialized countries. However, we may also find for this reason we are unique in many respects to both the former western nations or the latter larger ones.


Do you think the US can be compared fairly to other countries?



Would you support health care reform that included a tax on current employer provided benefits?



I have many more questions and issues to discuss but I will follow up with those after getting some feedback from this story.

Some of these issues include whether it is fair to pay the same price for a procedure when all doctors are not the same and there is no rating system. Will taxing high income earners really work when much of that income can be moved from salary to capital gains, as is common practice based on our current tax structure? Is the congress even remotely capable of simplifying anything? Should people be able to opt out of a program? The most sensitive issue we keep avoiding, but will have to reconcile eventually, is whether it is reasonable to spend hundreds of thousands of dollars (or more) to do quadruple by-pass surgery on someone that is 90 years old.

Here is one question that needs no polling but I will anyway:

Should congress start by reforming themselves and have to live with the same medical programs they legislate for the rest of us?



Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of Johnson and Johnson.

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Last updated: November 24, 2009: 06:14 PM

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