The Investment U E-Letter: Issue # 519
Monday, March 20, 2006 Health Care Stocks: How To Profit From A Medicare Crisis, Including Three Strong Funds
By Dr. Mark Skousen, Chairman, Investment U
As many of you know, my friend and financial guru Harry Browne died of Lou Gehrig's on March 1 at the age of 72. We here at Investment U send our sympathies to his wife Pamela and daughter Autumn.
My wife and I knew Harry for 30 years. I made my first investment, a silver dollar (which I still carry in my pocket as a good luck piece), as a result of reading his 1973 bestseller, You Can Profit from a Monetary Crisis. He was one of the first investment writers to show how investors can escape being victims of bad government policies such as inflation, a dollar devaluation, or price controls. They can protect themselves and even profit by investing in inflation hedges, such as precious metals, foreign currencies and real estate. Today, bad government policies may have changed since the 1970s, but there are still ways to protect yourself and profit. And Medicare is a great example. In today's issue, we'll discuss how it's possible to parlay Medicare's crisis into investment gains, specifically through health care stocks that are performing well in the market right now. But first, some background on Medicare… Who Actually Pays Your Hospital Bills? Ever since Medicare became law in 1965, the cost of health care and medicine has skyrocketed, much higher than the Consumer Price Index. (See the chart below from the "Employer Health Benefits 2005 Annual Survey," (#7315), published by The Henry J. Kaiser Family Foundation and Health Research and Educational Trust, September 2005.) 
* Estimate is statistically different from the previous year shown at p<0.05. No statistical tests were conducted for years prior to 1999.
? Estimate is statistically different from the previous year shown at p<0.1. No statistical tests were conducted for years prior to 1999. Note: Data on premium increases reflect the cost of health insurance premiums for a family of four. Source: KFF/HRET Survey of Employer-Sponsored Health Benefits, 1999-2005; KPMG Survey of Employer-Sponsored Health Benefits, 1993, 1996; The Health Insurance Association of America (HIAA), 1988, 1989, 1990; Bureau of Labor Statistics, Consumer Price Index (U.S. City Average of Annual Inflation (April to April), 1988-2005; Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey (April to April), 1988-2005. This information was reprinted with permission from the Henry J. Kaiser Family Foundation. The Kaiser Family Foundation, based in Menlo Park, California, is a nonprofit, independent national health care philanthropy and is not associated with Kaiser Permanente or Kaiser Industries. So, why have health care costs increased so dramatically? Largely it's because hardly anyone pays their own medical bills anymore. What we have is a socialistic "third party" pay system. Either your employer or employer's insurance, or the government's Medicare or Medicaid, pay for your doctor and hospital bills. As a Result, There Is Little Accountability and Cost Control in Health Care… Last week, I visited a friend from church who was in the hospital recovering from knee replacement surgery. He's 80 years old and not wealthy. I asked him how long he was going to be hospitalized, and he said for at least two weeks. I asked him how much the surgery, hospital and rehab would cost him. "I have no idea," he said. "Medicare is paying the bill." Ah, there's the rub. When the customer/user doesn't know how much the service or product costs, we're in trouble. I suspect the total cost for his knee replacement (actually both knees) will be well over $100,000. No wonder Medicare is going bankrupt and will need a massive injection of new funds to keep it going. Prepare for another tax increase! Yet, in the spirit of Harry Browne, there is a way to protect yourself and even profit off today's chaotic health care system… Invest in Health Care Stocks…They're in a Major Bull Market Fortunately, the federal government doesn't try to run the hospitals and health care industry. It relies on private firms such as Humana, United Health, Aetna, and Walgreens to provide drugs and medical coverage. Revenues are rising sharply in practically every medical field, from hospitals to drugs to nursing homes. And that takes us to stocks… For several years, I've been recommending in my newsletter, Forecasts & Strategies, that investors buy individual stocks and well-managed mutual funds that specialize in health care/drugs. Several Exchange-Traded Funds (ETFs) concentrate in this area: - iShares Dow Jones U.S. Health Care (AMEX: IYH)
- PowerShares Pharmaceuticals (AMEX: PJP)
- and Vanguard Health Care (AMEX: VHT).
All of these health care stocks are enjoying a major bull market right now. Good investing, Mark Today's IU Cribsheet - Speaking of the Consumer Price Index… What's the best gauge of inflation? Be sure to revisit Investment U #494, Gold as an Inflation and Market Indicator: Where to Put Your Money When Prices Edge Higher. Find out why oil is a misleading indicator of inflation and why you should be buying gold right now.
- Real estate - and its slowdown - is all over the airwaves these days. But real estate is still a good long-term investment for three reasons: 1) superior tax advantages, 2) unstable geopolitics, and 3) U.S. real estate is a bargain for foreigners who find the dollar cheap. Check out Investment U # 515, 2006 Housing Market Bubble: Today's Selloff In Real Estate…and How Many Years Before the Next Bull Market. And learn how the next year or two will be a great time to pick up some real estate.
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