Don’t Fear the Health Care System… Make It Work for You

Doc’s note: Earlier this month, we shared an essay from Cannabis Capitalist editor Thomas Carroll. Thomas’ extensive background in health care finance includes working for hospitals and managed care centers, as well as leading health market research at Stifel Capital Markets and Legg Mason about the health market. A graduate of Johns Hopkins Bloomberg School of Public Health, he’s uniquely qualified to tackle one of the biggest topics out there: How to navigate the financial side of the health care system.

Today, he’s sharing three more tips from his presentation from Stansberry Research’s Immersion Week at Canyon Ranch. If you missed his first two tips, you can read right here.

Today, more than ever, please accept this simple fact – your health is your most important asset. It needs to be managed just like anything else.

That doesn’t just mean eating right, exercising, and not smoking or drinking excessively. It also means understanding the rules of the playing field.

Earlier this month, I shared two tips on understanding health care. This week, I want to focus on three other topics I get a lot of questions about.

“Now you’re 65 – What’s this Medicare thing?”

Once you reach the glorious age of 65, you become eligible for Medicare.

This is the health care program you’ve paid for all your life through taxes. Now you get to collect the benefits. People that reach age 65 and become eligible for Medicare can expect to live for 21 more years.

Interestingly, Medicare will cover about 65% of your expected health care spending during those 21 years. The other 35% is on you.

How much will that be?

You better know because it is a lot. It needs to be part of your retirement planning. If not, your plans may need to be revised when it’s too late.

On average, people on Medicare for those 21 expected years will spend about $200,000 of their own money on health care.

An alternative is to consider the Medicare Advantage program (“MA”). This is a very successful partnership between the government and private-sector health care companies. This is a way to get all your Medicare benefits plus others not included in Medicare for much less.

Don’t take my word for it. About 40% of the Medicare population gets their benefits this way today. And that level has been rising for the last 10 years.

On average, using a MA plan will cost $130,000 out of your pocket during those 21 years. Wouldn’t you rather spend $70,000 on something else?

“Don’t be spooked by health care reform”

Wait – have you forgotten? 2020 is an election year. Health care was set to be a major deciding factor.

If anything, the global COVID-19 pandemic has crystalized the importance of health care. In my opinion, it has made health care the most important factor of the 2020 presidential election.

We are set to begin the biggest reform discussions of U.S. health care since 2008.

What do I expect? Overall, the most likely scenario will march the U.S. toward a deeper version of the Affordable Care Act (“ACA”).

The ACA is currently the law of the land, and the system understands how it works (finally).

Added to the ACA structure will be ideas strengthening the health care backbone against future pandemics like COVID-19. Mark my words, it will happen again. As Jeff Goldblum’s character in “Jurassic Park” correctly predicted: “Life will find a way.”

I know what you’re thinking…

Despite being one of the most politicized and polarizing laws ever passed, it’s actually a good baseline to start from. Over time, it will be strengthened… Its original problems will be solved.

If supported, the ACA can be a major step toward universal health care delivered by private sector entrepreneurs.

But don’t worry or get worked up over this. Life is too short.

Reform efforts will take years. They will lead to a better system. And ultimately, everyone will benefit, especially society as a whole.

“Don’t hate your HMO – Invest in it!”

From 1966 to 2016, health insurance premiums rose 10.7% annually, on average. This is more than the S&P 500 Index returned over this time period (9.7%). Wouldn’t it be great to somehow invest in this?

We can.

You see, health insurance companies are the middlemen that reflect these cost increases. They are the companies and government agencies that pay the hospitals, doctors, pharmacies, and other providers of care.

These companies consolidate all health care spending into a single price paid for all services. Their revenue must grow by the same rate as underlying costs. Otherwise, they will go out of business.

If health care costs are expected to rise 9% in the coming year, a large health insurer will set its premiums to rise by at least that same amount. Said differently, these companies have a built-in price inflator that has averaged over 10% for 50 years.

For you small business owners, wouldn’t it be great to raise your prices every year by this amount?

As a health care analyst, this idea was the central focus of my investment thesis for health insurance companies. It has held for over 20 years since these companies evolved into the modern-day players they are today. These stocks have been some of the best performing in health care.

The rules of the health care system are about to change again. If we’re all better educated, we can influence how this very important system is shaped. If not, the government will reshape it for us. And that will not be the best possible outcome. So take the time to learn as much as you can so you can protect your most valuable asset – your health.

Happy living and investing,

Thomas Carroll