Wall Street’s View of Healthcare Reform Initiatives

San Francisco—By 2020, healthcare expenditures in the United States are expected to reach nearly $5 trillion and account for 20% of the country’s gross domestic product (GDP), which is twice as much as in most developed countries.

With an aging population that demands costly care and a still struggling economy, the increases are unsustainable, according to Jerry Brimeyer, senior equity research analyst at UBS Financial Services, Inc.

“Something needs to be done,” Mr. Brimeyer said.

During a Contemporary Issues session at the AMCP meeting titled A Wall Street Guide for Health Plans and Managed Care, Mr. Brimeyer offered several ways the industry is dealing with the challenges. Still, he cautioned, transforming the system is difficult.

The Patient Protection and Affordable Care Act (ACA), enacted in 2010, is the biggest change in healthcare in decades. However, with the Supreme Court holding a hearing in March on the law’s constitutionality, there may be possible changes to the law. A decision is expected by late June.

Mr. Brimeyer cited other trends such as low healthcare utilization and pricing/reimbursement pressures that are adding to the uncertainty.

“There are so many things happening at the same time,” Mr. Brimeyer said. “It’s creating a whirlwind of change…Changes create threats, but changes also create opportunities.”

The highest priority, according to Mr. Brimeyer, should be reigning in costs while maintaining or improving the quality of care. In 2011, healthcare expenditures in the United States accounted for 17% of its GDP. The second highest was the Netherlands at 12.4%.

Mr. Brimeyer also recommended reforming Medicaid and Medicare, which are among the most expensive programs for state and federal governments. Whereas there are now approximately 40 million people in the United States ≥65 years of age, the eligible population for Medicare is expected to grow to 60 million by 2025 and 70 million by 2030, according to projections from the US Census Bureau.

As the population ages, health costs rise, according to Mr. Brimeyer. He discussed 2004 data from the Centers for Medicare & Medicaid Services that found per capita health spending was $7787 for people between 55 and 64 years of age, $10,778 for people between 65 and 74 years of age, $16,389 for people between 75 and 84 years of age, and $25,691 for people ≥85 years of age.

If the ACA is upheld, there will be an influx of Medicaid enrollees, as well. By 2014, an estimated 32 million additional people will have access to healthcare, and half are expected to obtain their coverage through Medicaid.

Managed care companies are playing an expanded role in Medicare and Medicaid, and their influence is expected to continue to grow as the government’s role in healthcare rises. Through Medicare, Medicaid, and other programs, the government now funds approximately one third of healthcare, but that is expected to increase to 50% by 2020. Mr. Brimeyer said that in the first year of Medicare Advantage and Medicaid managed care programs, there was an average 12% decrease in costs compared with traditional programs.

Mr. Brimeyer said the ACA and health reform initiatives are “marginally positive” for healthcare companies. As the industry becomes more focused on cutting costs, Mr. Brimeyer predicted that health insurers, generic drug manufacturers, pharmacy benefit managers, integrated health systems, and other companies that help keep costs in check will perform particularly well in the coming years.