Yesterday Bloomberg reported that, according to its data, "earnings at health care companies will
expand 15 percent this year, compared with estimated profit growth of 8.5
percent for the S&P 500."
If you own healthcare stocks, this is good news. But if you
are a consumer paying for drugs, insurance and the hospital bills that
insurance doesn’t cover, you have to wonder: why are their earnings so high? Is
this what people are talking about when they say that healthcare is overpriced?
On Wall Street, healthcare and tobacco are both considered "defensive investments." Why? Because in a recession they’re less likely to
plummet. If you’re addicted to tobacco, you are going to continue to buy cigarettes, even
if it means giving up something else. As one Wall Street analyst puts it, “You just don’t have much choice.”
The same could be said of healthcare: you just don’t have
much choice. When you are sick, you are not in a position to say “I’ll wait
until prices come down" or "that’s too
expensive; I’ll find something just as good that’s cheaper.” You are not in a position to comparison shop.
This is why market competition doesn’t work to control
healthcare prices: the consumer just doesn’t have the same power that he has in most markets.
