In a day full of losses, the healthcare sector has managed to stay in positive territory. Managed healthcare providers such as WellPoint (WLP) and UnitedHealth Group (UNH) are providing the biggest boost to the sector as investors hope that a public option for health insurance is not an essential element of reform.
Also providing a boon to the healthcare sector are pharmaceuticals like Pfizer (PFE) and Merck (MRK) and healthcare service companies such as Express Scripts (ESRX) and Quest Diagnostics (DGX). The idea here is that any type of reform that extends healthcare to more people will increase demand for medical treatments, tests, and procedures.
Today's front page article in the Wall Street Journal details the shift in thinking on a national healthcare plan or a nonprofit health insurance cooperatives.
Over the past several months, insurance companies have been dragged down as investors worry that hospitals and doctors would charge private companies more to make up for being underpaid by a government plan. There are also concerns that a public plan would crowd out private options and, thus, lead to nationalized healthcare. A public or co-op plan poses the biggest threat to WellPoint, which operates Blue Cross and Blue Shield plans in 14 states, since they would directly compete in selling individual health policies.
To me, it seems that there would be better ways to lower insurance costs than creating a government-run competitor. The first would be to create incentives for competition among insurance companies by allowing any company to compete in any state. Preventing free competition amongst insurers has certainly contributed to soaring premiums.
Implementing electronic medical records across the country is also a must. Although the cost is substantial, the investment would pay tremendous dividends. Aside from preventing duplicate procedures and costly treatment mistakes, electronic medical records would allow physicians to create and follow a set of “best practices.” “Best practices” would reduce costs by eliminating a physician’s incentive to order a more costly or frequent procedures. Following “best practices” also instills confidence in patients and deters those who seek out treatment regardless of having a legitimate need.
Another important implication of electronic medical records is that they could help identify people who abuse free visits to the E.R. or doctor’s office every time they get a runny nose. Identifying these people and charging them a higher premium could lead to decrease in unnecessary costs.
On a smaller scale, an increased focus on preventative care as well as price transparency would yield benefits and lower our healthcare costs.
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Peter J. Lazaroff, Investment Analyst
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