“A fanatic is one who can’t change his mind and won’t change the subject.” – attributed to Winston Churchill

Whether Sir Winston said it or not, the saying above is a good rule of thumb and, given the shift on the Hill from health care reform to tax reform, it may mean that things in our nation’s capital are getting a little less fanatical. But I think the message of this shift for investors is far greater than that. Perhaps the intractability of our health care problems has finally been made clear to those with power and those without it.

I know about the mechanics that were at work. I know that the Republicans hold a fairly slim majority and that their leader (President Trump) is hardly an insider with favors to call in. I know that party unity frayed at the edges and that, given the Democrats’ absolute solidarity on the issue, health care reform, for good or bad, seems to be stalled.

Those are the mechanics, but I believe deeper, more profound issues are at stake. There is a collision of forces at work here that I think will result in an almost inexorable rise in health care spending as a percentage of gross domestic product.

Baby Boomers are aging and will simply need more medical care as their years advance. Medical technology continues its march forward, which means that more can be done for them. Think of the synergy here: New technology means we can live longer, living longer means we will need more care, and needing more care should mean that more money will need to be spent on us. I don’t know whether a vortex or a perpetual motion machine is a better description, but those seem to be the facts. Finally, we live in a voting democracy. That means seniors (and others) can vote to connect the first condition with the second.

It is one thing to tell patients we don’t have the means to save them (when those means are scientific and the science is still fallible). It is quite another thing to say we don’t have the means when those means are fiscal. People vote their interests, and staying alive is very high on most people’s list of things to do.

I think the full implications of this collision of need, innovation, and democracy have yet to be fully grasped by the investing public. Health care stocks are no longer the bargain they once were. But earnings expectations still seem to have an upward tilt, and for now, legislative interruption of the industry seems to have been moved to the back burner.

I think it may stay there for a while. Who knows? The longer it’s there, the better the chance that a slow simmer comes to be seen as possessing a little bit of sizzle.


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