By John Wasik
CHICAGO, June 22 The one thing the Supreme Court
will have no impact on as it decides the constitutionality of
the Affordable Care Act is the immutable trend in U.S.
healthcare: the growing cost of caring for an aging population.
A handful of industries will remain profitable despite the
thorny politics of healthcare policy, and the best way to view
this volatile situation through the lens of stocks is in the
The annual growth rate in healthcare spending is expected to
remain around 4 percent from now until 2014, then ratchet up to
6 percent, according to recent forecasts by the Centers for
Medicare and Medicaid Services. In comparison, general consumer
prices are rising just under 2 percent on an annualized basis.
Other than burgeoning costs, there's demographics. Some
10,000 baby boomers are turning 65 every day - a trend that will
continue until 2030, when boomers will comprise almost one of
every five Americans, according to the Pew Research Center.
Naturally, their healthcare needs will be increasingly costly
and complex. They will still demand specialized care for chronic
conditions, pharmaceuticals and acute care.
With those likely developments in mind, here are two sectors
I think will prosper.
It's an undeniable trend that pharmaceuticals will continue
to be utilized as a way to lower overall healthcare costs. From
1999 to 2009 alone, according to the Kaiser Family Foundation,
prescription sales rose 39 percent, compared to general
population growth of 9 percent.
Only a large-scale government purchasing plan will pare
profits in this sector - a good idea for lowering costs, but
unlikely politically, at least in the next year or so. Yet as
pharmaceuticals and biotech drugs assume an even greater role in
managing chronic conditions and preventing surgery, look for
growth in this industry.
For a focus on pharmaceuticals, consider the SPDR S&P
Pharmaceuticals fund, which holds large manufacturers
like Eli Lilly & Co, Pfizer Inc and Abbott
Laboratories Inc and lesser-known biotech firms. A more
international portfolio can be found in the iShares S&P Global
Healthcare Sector fund.
MEDICAID AND MEDICARE MANAGED CARE PROVIDERS
Once the pariah of health consumers, managed care has
quietly been assuming a growing role in reducing healthcare
costs in public programs. Cash-strapped Medicaid programs, which
cater to the poor, have been accelerating the push to get more
patients into these plans and out of costly fee-for-service. At
present, there are more than 26 million Americans in Medicaid
managed care programs, according to the Kaiser Family
The only wild card preventing growth in this sector is
whether Congress will restrict or reduce funding for Medicaid,
although managed care is seen as a viable way of managing or
If you just want to focus on healthcare providers, then an
ETF like the iShares Dow Jones US Healthcare Provider fund
is a diverse mix of companies such as UnitedHealth Group
, the largest U.S. insurer; Quest Diagnostics, a
testing company; and Medco Health Solutions, a pharmacy
Medicare managed care coverage also continues to grow
robustly, with 8.4 million enrollees in Medicare Advantage as of
April 2011. That's up 6 percent from the previous year,
according to the Government Accountability Office. All told,
there are more than 12 million beneficiaries in related Medicare
managed care programs. Since the program is in fiscal trouble
without tax increases or benefit cuts, policymakers may favor
moving more patients into managed care.
Although I try to take a global view that discounts
short-term market movements, there's still a high dose of
uncertainty in my overview.
Congress still needs to work on Medicare reform and find
sustainable ways of funding Medicaid programs. The biggest
unknown remains political risk and the composition and direction
of Congress in 2013. Will it move to contract public programs
and shift even more patients into managed care? Or will it shift
in the opposite direction to lower costs even more with a
single-payer model - probably the least likely scenario. The
answer will shape the future of entire industries, so keep
monitoring this fickle patient.