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Boomers Driving the Future of Healthcare
WE KIND OF looked at healthcare from the Boomers’ perspective in the previous chapter, in that aging Boomers are going to need a lot more healthcare than previous generations because of their size and expected longevity. And with the vast numbers of people needing near-end-of-life healthcare, the sector as a business is going to be bringing in the dollars hand over fist despite any real or perceived limitations caused by the Affordable Care Act. The same upside tsunami that is poised to sweep over the assisted living and death care sectors is going to be rolling over the healthcare sector first. The numbers of people needing or wanting everything from face-lifts to cataract removal to heart surgery is about to soar. And along with medical procedures, medicines, and general healthcare, Boomers will need and want all of the ancillary healthcare products that ease recuperation and assist with disability.
Remember, Boomers are a mobile generation, and they are not going to accept loss of mobility. So anyone who can design better crutches, wheelchairs, stair lifts, and other mobility aids is mining a potential vein of gold. The Boomer axiom of Make my life easy—Save me some time—Don’t rip me off will hold true with healthcare as well.
The Boomers have been a transformative force in every sector of the economy since their birth, and now they are going to transform healthcare. It’s a transformation that opens up a plethora of potential opportunities but also presents a host of challenges.
Consider:
While the Boomers’ massive numbers will lead to increased sales of myriad medical products and services, to what extent will their expected overall high costs serve to hinder such sales increases?
As the customer base grows by leaps and bounds, the ranks of Boomers who work as healthcare providers will be plummeting, creating potential voids in clinical care and healthcare management. Who is going to replace them?
And then there’s Medicare. . . . Fears abound in the medical profession and in Washington, D.C., that the Boomers are going to overwhelm the system. Given that the Congressional Budget Office is projecting that Boomers are going to increase Medicare enrollment by more than 30 percent within the next ten years, such fears may not be unjustified.
But even if not “unjustified,” perhaps overblown? I say this for a number of reasons, key among which are the rising ranks of adult members of Generation Y. While I hate to put it on their backs, they will be crucial in saving the nation’s healthcare system and Medicare. Think about it: The U.S. healthcare industry has always been both beholden to and vulnerable to the shifting sands of demography.
When the massive block of 80 million Baby Boomers dominated the 20- to 40-year-old segment of the U.S. population from about 1965 to 1985, the private shared-risk, insurance-based healthcare model was very successful. Boomers were paying insurance premiums into the system and not using many of the services in return because they were young and healthy. The much smaller Silent Generation, born 1925 to 1944, occupied the 40- to 60-year-old segment of the labor force, and because of their age at that time, used more services than they paid for in premiums. However, the critical mass of Boomers more than made up for this deficit. This demographic fact kept insurance premiums low and healthcare service providers profitable. Starting in 1984, the Boomers began to populate the 40- to 60-year-old segment of the labor force, and the value of the medical services they used began to exceed what they were paying in premiums. The private shared-risk insurance model began to fail. The young healthy generation right behind the Baby Boomers, Generation X, which was about 9 million people smaller by births than the Boomer Generation, was too small and economically impotent to compensate for the Boomers’ escalating utilization of medical services.
But now Generation Y, the largest generation in American history, is beginning to enter the workforce in large numbers. Add in the millions of young Hispanic immigrants and socioeconomically advancing African American cohorts and you have a complex private healthcare insurance marketplace with the potential to significantly expand. In short, millions of new very desirable young healthy potential customers poised to flood the private shared-risk insurance-based model. And all of this was set to take place without a single piece of legislation or government involvement. Imagine that. Our current private healthcare system here in the United States was not broken, it was just suffering from a demographically induced setback that would have self-corrected as our demography shifts. In short, Generation Y would have saved the existing private shared-risk insurance-based model, and will undoubtedly solve the looming healthcare provider shortage, as well.
I am not sure how the Affordable Care Act is going to affect these demographic dynamics in healthcare going forward, but I have a feeling that it is going to end up as a dead horse. About two and one-half years ago I was hired to keynote an annual meeting for a healthcare-related company in the Midwest. This private company handled the complex administration of Medicaid and Medicare for an entire state. I was warned up front not to refer to the Affordable Care Act as ObamaCare as this would be offensive to the company’s president. I am a mercenary, so I never mentioned ObamaCare. The president spoke before I did and extolled the merits of the Affordable Care Act, pointing out that this new 2014 federal legislation would increase the company’s workload and compensation by 25 percent. Twenty-five percent is a mammoth increase in the number of takers to be introduced to an already struggling shared-risk healthcare system. I silently forecast that ObamaCare would die a slow but sure death, probably after President Obama left office. As of the last months of Obama’s term, I believe I started hearing death rattles.
Another reason I believe the fears of a looming healthcare crisis may be overblown is the American people’s incredible capacity for innovation. When confronted with problems or crisis situations, Americans rally and work hard to quickly bring the situation to heel. The massive population of aging Boomers definitely represents a challenge for the continued successful and affordable delivery of quality healthcare services. But in America, where there is challenge, there is opportunity. And we’ve got more than 80 million members of Gen Y reaching the primary age range in which people are generally at their best meeting challenges, and at seeking opportunity.
Finally, innovation—whether in treatment methods or delivery of care—should help reduce costs. In fact, “innovation” has been U.S. healthcare’s catchall of late, with innovators across the country seeking out and testing new treatment methods and new means of delivering effective healthcare. “Mobile health” technologies such as smartphone apps, wireless sensors, remote monitoring, and even an iPhone-sized ultrasound are transforming patient-doctor interactions, offering savings in times, and giving patients more opportunities to self-manage their care. “Accountable-care organization,” as encouraged through the Affordable Care Act, is working to pool healthcare provider resources and more effectively manage their operations in order to cut costs and reduce redundancies in care. Electronic-medical-record systems are being developed and revamped to ensure better delivery and ongoing monitoring of medical care. The list of ongoing and potential innovations certainly doesn’t end here, and consider also that the ranks of the innovators are poised to rise with the aging of Generation Y. And remember, where there is challenge, there is opportunity.
The healthcare sector is so massive that space in this book doesn’t allow for a complete overview of all its parameters, but perhaps we should look at a couple of health concerns that seem to be impacting all of the generations. Obesity has emerged in the past twenty years as the leading lifestyle-related cause of disease and death after smoking, with it being considered a major risk factor for a number of diseases, including type 2 diabetes, cardiovascular disease, stroke, and certain cancers. Some healthcare researchers believe that obesity-related healthcare costs have now exceeded those of smoking and problem drinking. The number of clinically obese adults in the United States is believed to have increased by more than 50 percent since 1980, while the number of overweight children and adolescents has tripled. The Centers for Disease Control and Prevention in its latest findings on obesity has determined that almost 35 percent of U.S. adults and 17 percent of children and adolescents aged 2 to 19 are obese.
While the obesity epidemic is affecting all of the generations, certain age, racial, and ethnic groups seem to be facing higher levels. Asians have the lowest rates of age-adjusted obesity, at just over 10 percent, while Blacks have the highest, at almost 50 percent. The Hispanic rate was pegged at just over 42 percent, while Non-Hispanic Whites came in at 32.6 percent. For children and adolescents, Hispanics had the highest rates, followed by Blacks, Non-Hispanic Whites, and Asians.
All of this means that healthcare impacts related to obesity will continue to rise; however, the demographics of the nation’s obesity epidemic vary by region and by state. On a regional basis as of 2014, the Midwest experienced the highest prevalence of obesity at 30.7 percent; followed by the South, 30.6 percent; Northeast, 27.3 percent; and West, 25.7 percent. All states recorded prevalence above 20 percent, with California, Colorado, Vermont, and Massachusetts recording the lowest prevalence, and West Virginia, Arkansas, and Mississippi recording a prevalence greater than 35 percent.
And at this juncture, I’m going to ask you two questions: 1. What occupation is likely seeing a significant boom due to this healthcare-related demographic? And, 2. Where would be the best locations in America for a person to set up shop with this occupation?
You answered the first one correctly, right?
Bariatric surgeon? Well, that wasn’t quite what I was looking for, but their numbers are definitely growing, too.
No, I was looking for dietitian/nutritionist.
As for the best places for a dietitian/nutritionist to set up shop, I assume you answered the three states with an obesity prevalence above 35 percent, and/or the “Midwest” and “South.”
And yes, you have determined a good demographic starting point for where the need might be, but you will still want to figure out if that need is being met. Sure, the epidemic is out of control in Mississippi, but what if the state is already overrun with dietitians/nutritionists? Well, you’ll need to figure that out, and then look at the population of that group of workers in the other favorable states.
How? The U.S. Bureau of Labor Statistics has a fantastic website (www.bls.gov) with databases for examining the demographics of occupations.
And, by the way, of the three most obese-prevalent states, Arkansas definitely seems to have the greatest demand for dietitians/nutritionists; however, West Virginia appears to offer significantly higher earnings potential.
Now that you know a bit more about the healthcare demographics of obesity, what other healthcare-related demographic might have a big impact on the nation’s healthcare system?
Naturally, you’ve been reading carefully, saw the answer referenced a couple of pages back, and know that I am obviously referring to smokers and their habit, which is the leading cause of preventable diseases and death in the United States.
In some ways the demographics of smoking is more interesting than that of obesity. Perhaps the most noteworthy fact is that U.S. smoking rates have been falling for the past fifty years, and hit an all-time low in 2014, when the CDC estimated that only about 16.8 percent of the adult population was smoking. In 1965 it was estimated that 42 percent of the adult population smoked, a figure that decreased by half by 2005, and then dropped another 20 percent in just the past ten years.
While smoking affects all the generations, smoking rates vary widely among age, ethnic, and racial groups, as well as by sex, education, income levels, regions, states, and even sexual orientation.
Men are more likely to be current smokers than women, with almost 19 percent of men tagged as current smokers in 2014, compared to just under 15 percent of women. We older folks have the lowest rates, with only 8.5 percent of the population over 65 currently smoking. It’s highly probable that some of us got smart and quit, but on the flip side, part of that lower rate is due to early death caused by smoking. Adults aged 25–44 had the highest rates, at 20 percent of the population, while 18 percent of the aged 45–64 population currently smoke. The younger adult members of Gen Y tend to smoke less than other generations, with only 16.7 percent of those aged 18–24 smoking.
As for smoking on a race or ethnicity basis, Native Americans have the highest rates at just over 29 percent; followed by multiracial individuals, 27.9 percent; Non-Hispanic Whites, 18.2 percent; Blacks, 17.5 percent; Hispanics, 11.2 percent; and Asians, 9.5 percent.
Those with lower levels of education tend to smoke the most, which kind of figures. However, those of less means also tend to smoke more, which almost doesn’t make sense, as they are the least likely to be able to afford what has become an expensive addiction. Almost 30 percent of those without a high school diploma smoke, but of more interest, 43 percent of adults with a General Equivalency Degree (GED) smoke. I have no idea what might be causing that spike, but find it so odd that I believe it deserves a study.
Other than the GED anomaly, smoking rates go down with the level of education, with 21.7 percent of high school diploma holders smoking, 17.1 percent of those with an associate’s degree, 7.9 percent of those with an undergraduate college degree, and only 5.4 percent with a graduate-level degree. So, maybe all those student loans are worth it. . . .
While 15.2 percent of adults who live at or above the poverty level smoke, 26.3 percent of those who live below the poverty level smoke. As I noted, I’m not quite sure how this population can afford to smoke, and would posit that smoking most likely helps keep them below the poverty level.
On a regional basis smoking rates tend to follow in step with the rates of obesity, with the Midwest having the highest rate, at 20.7 percent; followed by the South, 17.2 percent; Northeast, 15.3 percent; and West, 13.1 percent. A quick glance at the states shows Utah with the lowest rates, at 9.7 percent, and West Virginia with the highest, at 26.7 percent.
And for yet another rate perhaps deserving of more scientific study, the gay/lesbian/bisexual adult smoking rate comes in at 23.9 percent, significantly above the straight adult rate of 16.6 percent.
So, what do these smoking-related demographics mean for healthcare? This is pretty much a rhetorical question as I did not provide you any hints in the previous pages, nor do I know the answer myself. What I do know is that the CDC believes that smoking still causes more than 480,000 deaths per year (along with the associated healthcare costs while they die), and that more than 16 million Americans are currently living with a smoking-related disease.
Depending on the data source, smoking-related mortality and disease numbers haven’t changed all that much over the years, despite the significant 50 percent drop in smoking rates over the past fifty years.
Well, we’re talking demographics here, and if you pause to think about it, I would surmise that you can answer this question.
Give up?
Easy. While the rate of smoking in the United States has pretty much dropped 50 percent since 1965, the overall population has increased by more than 60 percent, and thus the absolute number of smokers hasn’t really changed.
I know that I’ve repeatedly inferred that this demographics stuff is easy, but I never said that it couldn’t be tricky at times.
The majority of my focus in this chapter has centered on how the Baby Boomers will impact U.S. healthcare, so you’re perhaps wondering if the other generations are going to affect the sector. As indicated, I see the Boomers as a tsunami hitting the healthcare sector, and no, I don’t really foresee that the other generations are going to make much of an impact over the next twenty years, other than how Gen Y will:
help fill the ranks of retiring Boomer healthcare workers
bring in new innovations, and
help pay for it all
I don’t see any other healthcare tsunamis, nor do I believe that the other generations will create any significant sinkholes. I do not foresee Gen Y creating a new “baby boom” but believe we will see a healthy number of births going forward.
Now that you’ve been given some bare-bones basics regarding demographics and the U.S. healthcare sector, do you think that the demographics support investment in healthcare equities?
I would certainly say yes, but the question remains as to which ones. And there are hundreds to choose from. This is a sector in which my colleagues would advise you to go with “big” and “long-established” companies, because they are better able to weather the overall ups and downs of the economy and stock market and are more likely to pay a dividend.
You are probably familiar with “biotech” and have heard tales of biotech stock prices doubling, tripling, quintupling, and even growing by what seems to be a gazillion percent over short periods of time. A biotech, for the record, is similar to a pharmaceutical or medical device company; they all generally conduct clinical research and focus on novel drug and treatment development. However, a pharmaceutical/medical device company is already established with products on the market and therefore capable of managing and diversifying risk, whereas all but a few biotechs are usually working on a do or fail proposition. Thus, while a successful biotech can reap significant returns should its experimental product(s) receive regulatory approval, somewhere in the neighborhood of 85–95 percent of all biotech endeavors fail, with subsequent losses in equity pricing. Thus, a biotech is basically a wannabe pharmaceutical1 or medical device company, so invest warily, if at all.
The bigger, long-established healthcare companies can be broken down into sub-sectors, such as pharmaceuticals, diagnostics, generic drugs, long-term care, medical insurance, hospitals, and medical instruments and supplies, among others. Some of the biggest players in these fields that offer stable dividends are:
GlaxoSmithKline PLC (GSK)
Pfizer (PFE)
Merck (MRK)
Bristol-Myers Squibb (BMY)
Amgen (AMGN)
Meridian Biosciences, Inc. (VIVO)
Becton Dickinson (BDX)
Stryker Corp. (SYK)
Select Medical Holdings Corp. (SEM)
St. Jude Medical (STJ)
UnitedHealth Group (UNH)
These are just a few examples of the many healthcare companies that might be worth investing in, and you could spend days, if not weeks, researching them all.
Another angle to explore would be an exchange-traded fund (ETF), which is basically a marketable security that owns a basket of assets (stocks, bonds, futures, etc.) and divides them into distinct shares traded on the exchanges. A typical healthcare ETF would own a variety of healthcare-related stocks and bonds, and its price would vary during each day based on market conditions and the cumulative strength of its portfolio. Some people consider ETFs a good investment because they spread the risk and let others take care of the detailed research. Many ETFs also offer dividends. Among the more popular healthcare ETFs are:
Vanguard Health Care (VHT)
Health Care Select Sector SPDR (XLV)
iShares US Healthcare (IYH)
And . . . need I say it?
Conduct your own due diligence.