During a recent call with investors, Healthcare sector head Tom Tobin outlined the top three ideas his team is watching.
1) The “slow-moving car wreck” of health care deflation.
Health care inflation rose 1,600% in the last 50 years, far faster than the broader economy. The unwinding of decades of inflation is going to be painful. “Companies that are going to suffer are those that get exposed as this inflationary tide rolls out.” “We’re going to see margin pressure and we’re going to see those companies with the best pricing leverage emerge with premium multiples,” Tobin says in the video above.
2) Contrary to popular belief, an aging population isn’t a good thing.
Forty-five to 64 year olds spend more on medical care than older or younger populations and they make up the largest part of commercially insured population, which pays the highest prices and is the most profitable type of patient in the United States. Unfortunately, the number of people in this age group is no longer growing and heading toward declines in the next decade. Meanwhile the number of over 65+ Medicare enrollees, where profits are hard to come by, is increasing rapidly. Add to this the negative impacts of higher co-payments, rising deductibles, and the reversal of the ACA, and the outlook looks extremely challenging.
3) The constant specter of policy overhaul.
The proposed tax reform bill currently before Congress has a number of potential bullish and bearish catalysts. Tobin dissects the Health Care Sector impact, like the positive effects of a lower corporate tax rate and repatriation, and the negative, such as the repeal of the mandate to buy insurance, medical expense deductions, and interest deduction caps of 30% adjusted gross income. All have their own puts and takes for the different companies Tobin covers on the long and short side.
Watch the video above for more.
