The Congressional Budget Office released a long-term budget forecast in June 2009 that projected that the cost of Medicare — which is social health-care coverage offered to those age 65 and older, as well as younger people with disabilities — would practically double from 3.5% of GDP in 2009 to 6.9% of GDP by 2035, about six years after the last group of boomers retires. Even more pressing, better treatments and healthier eating habits are greatly extending the lives of retirees beyond just the age of 65. Data from the Social Security Administration illustrates this point, with life expectancies beyond the age of 65 extending roughly seven or eight years for both males and females from 1940 through 2050.
Source: Social Security Administration.
All facets of the health care sector appear likely to benefit from this trend of longer life — from hospital and insurers, to pharmaceutical companies and medical device makers geared toward an aging population. One company that really stands out is Medtronic, Inc. (NYSE:MDT) . If we simply extrapolate out the fact that cardiovascular diseases are the leading cause of death in this country based on PhRMA’s research, then a dramatic jump in those aged 65 and older should lead to a large boost in pacemakers, stents, and valve replacements — all markets that Medtronic operates in. Another area of solid growth that should be spurred by boomers is spinal implants, an area where Medtronic is the head honcho.
3. Obamacare will streamline the health-care industry
Regardless of whether you support the Affordable Care Act, one thing is for certain: It will bring millions of uninsured Americans under the fold of government-sponsored Medicaid. As I noted, the baby boomers were one of the hardest-hit groups during the recession, so they may be one of the primary beneficiaries of the beginning of Obamacare in 2014.
Obamacare definitely has its share of critics, but it’s expected to bring approximately 16 million newly insured Americans under the scope of government-sponsored health care. These are people who previously either avoided going to the doctor unless absolutely necessary or put holes in the pockets of hospitals because of their inability to pay their health care service costs. In addition, Obamacare mandates individuals to carry — and businesses to provide — health insurance or face potential tax penalties on a per-person basis.
Not surprisingly, no group of companies stands to benefit more from the streamlining of the health-care process more than hospitals. HCA Holdings Inc (NYSE:HCA), the nation’s largest hospital operator, can, as a result of Obamacare, expect its bad-debt provision to fall dramatically. This should ultimately free up funds that can be used in other aspects of its business — including acquisitions, funding future hospital construction, purchasing new medical equipment, and perhaps even paying shareholders a dividend.
4. Little threat of drug or device commoditization
One of the biggest threats of the technology sector is that everything is slowly being commoditized. From memory to assembly line parts, many technical components can now be duplicated with ease, placing long-term downside pressure of many technology companies’ margins. The same can’t be said about the majority of health-care companies.
