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To Fix the Economy, Fix Healthcare

Healthcare coverage and costs aren't our only problems but they're big ones that are being ignored.
Inquisitive investors can read Patrick’s clarion insights in the Macro Growth and Income Alert newsletter, where he infuses each issue with a macroeconomic outlook that points to the strongest sectors and best-in-class stocks. His fundamental perspective on stock selection coupled with Robert Ross’s quantitative rigor helps subscribers earn a consistent annual income using stocks and secured options. Before joining Mauldin Economics, Patrick was the managing editor at All Star Fund Trader, an award-winning advisory service near the top of Hulbert Financial Digest ratings for eight years. For over a decade, he was a contributor to Weiss Research, and he served as an equity portfolio manager for high net worth investors. Add to that his experience as a stock analyst, securities and commodities representative, compliance officer, risk manager, and even as a military intelligence officer—and you’ll understand why Patrick’s second-to-none research intuitions make him a trusted member of John Mauldin’s inner circle. Check out Patrick’s latest market take with a model portfolio designed for consistent income. Subscribe to Mauldin Economics’ Macro Growth and Income Alert newsletter.
Inquisitive investors can read Patrick’s clarion insights in the Macro Growth and Income Alert newsletter, where he infuses each issue with a macroeconomic outlook that points to the strongest sectors and best-in-class stocks. His fundamental perspective on stock selection coupled with Robert Ross’s quantitative rigor helps subscribers earn a consistent annual income using stocks and secured options. Before joining Mauldin Economics, Patrick was the managing editor at All Star Fund Trader, an award-winning advisory service near the top of Hulbert Financial Digest ratings for eight years. For over a decade, he was a contributor to Weiss Research, and he served as an equity portfolio manager for high net worth investors. Add to that his experience as a stock analyst, securities and commodities representative, compliance officer, risk manager, and even as a military intelligence officer—and you’ll understand why Patrick’s second-to-none research intuitions make him a trusted member of John Mauldin’s inner circle. Check out Patrick’s latest market take with a model portfolio designed for consistent income. Subscribe to Mauldin Economics’ Macro Growth and Income Alert newsletter.

Pixabay/Ernesto Eslava

If you are American and you have health insurance, you probably get it from either your employer or some kind of government program. Or possibly both, if the government is your employer.

Almost no one in the US gets health insurance on their own. We can’t afford to buy it and insurers can’t afford to sell it, thanks to our crazy patchwork system. As a result, people fall through the gaps and millions remain uninsured.

Even many who are insured might as well not be, since exorbitant deductibles leave them practically uncovered.

This is both a human problem and an economic problem—human because we don’t want anyone to suffer, and economic because suffering generates societal costs.

The weirdest part: This is a uniquely American problem. Others have solved it. We choose to let it continue… then wonder why our economy won’t grow faster.

Healthcare isn’t our only problem but it’s a big one.

Hammer Drop

Last week Whole Foods Market, a unit of Amazon [AMZN], announced it would end medical benefits for about 1,900 part-time workers.

This seems harsh, but in fact Whole Foods was unusually generous. Few employers offer benefits to people working as little as 20 hours a week.

Still, Amazon already struggles with image problems over its pay and working conditions. Why generate more bad PR, especially when the amount saved must be a mere drop in the Amazon money river?

I have no visibility into their thinking, but I have a guess. Maybe the amount wasn’t so small, and it was growing.

Those 1,900 workers and their families aren’t a random sample of the population. Some probably took a relatively low-paid, part-time job because they desperately needed the healthcare benefits.

I personally knew someone in a similar situation. He and his wife, both in their early 60s so not yet Medicare eligible, were both on very expensive drugs for chronic (but controllable) health conditions.

Neither could find a full-time job with benefits. The wife found a part-time role that did (not at Whole Foods). She took it, and they both got the drugs they needed. Yay.

Then the hammer dropped. Their presence in that organization’s pool drove the claims ratio through the roof. The insurer raised the rates sharply, and it ended up dropping the plan for everyone. Hundreds of people lost health insurance.

I suspect something like that happened at Whole Foods.

Within that group of 1,900 workers and their dependents, there are probably a few with extremely expensive health conditions. And since employers can’t discriminate, dropping the whole plan is really their only way to control that expense.

Again, this is just a guess, but I think it’s plausible. And it wouldn’t happen in many other countries where access to healthcare doesn’t depend on employers. Everyone is in one giant group, spreading the costs more efficiently.

Wasted Capital

The other part of the problem is that those drugs are so expensive. Again, this is a problem we in the US are choosing to endure. Other countries don’t have it, at least not as severely.

In 2018, our per capita healthcare spending was $10,586. In Japan, it was $4,766. In Canada, $4,974. In the UK, it was $4,070.

Are people in Japan, Canada, and the UK dropping like flies? No. By most any statistic you can find, they are as healthy as Americans and often more so, despite spending far less on their health than we do.

Our extra $6,000 or so per person, per year, buys us no additional health. So why do we spend it?

There’s no economic reason. This is politics. The people who get that $6,000 from you and me spend some of it buying influence in Washington.

The result: high profits in the healthcare sector (especially pharmaceuticals) and a lot of sick, uninsured or underinsured Americans.

These sick Americans, in turn, contribute less to growing the economy.

GDP growth is simple math: the number of workers x the hours each works x the amount each produces per hour. Our healthcare system reduces all three factors.

Incompatible with Growth

There are lots of ways to solve this. The Affordable Care Act was one attempt, which obviously hasn’t worked as well as envisioned.

Some people want to modify the ACA to repair its shortcomings. Others want some kind of universal “Medicare for All” program. Others want to start over.

Walmart [WMT] is entering the space, just last week opening its first “Walmart Health” center in Dallas, Georgia. It is larger and offers more services than the small clinics in other chain stores.

That may help, but I’m dubious it will change the big picture much. Walmart might actually increase sales of those $10,000 a month prescription drugs by diagnosing more patients who need them.

We should consider all these ideas, but meanwhile the US economy will keep struggling. Our healthcare system is incompatible with a sound, growing economy. The Federal Reserve can’t fix this one.

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Equities Contributor: Patrick Watson

Source: Equities News