Like it or not, Obamacare, or parts of it at least, look here to stay with a number of provisions starting this year.
The 2013 provisions tend to focus on the revenue side of the legislation. Higher Medicare tax rates on family incomes over $250,000, higher ceilings for medical tax deductions (higher taxes) and lower limits on contributions to Health Savings Accounts will all begin this year.
With many new taxes and costs phasing in this year, it’s kind of easy to feel negatively about the overall scope of the law. But smart investors know when to switch from opposition to opportunity, and there are a number of changes occurring with this law that are likely to create some solid long-term trends for investors.
After becoming familiar with the law, my perception is the program endeavors to both increase the sheer number of people using the health care system while at the same time reduce what the system is paid for the services it provides to these new consumers.
The net result will be in order for the health care industry to remain viable, health care providers will need to develop new ways to deliver monumentally more services at lower “profit margins” across the board. Whether this can be accomplished remains to be seen, but the process of rising to meet the new demand for services may create some interesting investment themes.
First, the low hanging fruit. When we go to the doctor we tend to leave his or her office with a prescription. Margins on drug sales are certain to be reduced in the Obamacare environment, but you just can’t beat escalating demand for earnings growth. Large drug company stocks have a place in most portfolios, and with solid dividend yields and strong earnings growth this case is easy to make. Also on this list should be the large drug store chains and for the more aggressive and actively engaged investors, the right biotech stocks can bring excitement to a portfolio.
Medical information technology could also be on the front end of an Obamacare growth cycle. With cost containment becoming vital to the survival of all health care systems, technology will certainly serve an important role. Do your research and make sure you pick only the best of breed in the category.
Third, health care is a people business. Diagnosis and care requires medical professionals to observe and consult with their patients in person, something that can’t be “offshored” and something requiring a place to actually go to work. Companies owning specialized health care real estate appear poised to provide a vital service to a growing industry which is formula for opportunity in my mind.