Hedging Medical Expenses in the Market

I recently injured my wrist badly enough to require an MRI test. That test, which involved a nice nurse sticking a large needle into the middle of my wrist, injecting metallic fluid, and then placing my arm inside of a very loud MRI machine, cost over $3,000. I paid just a bit over half of that after insurance. OUCH!!! (on many levels!)

During this test, and the accompanying doctor visits, I asked the medical professionals how their business was doing. They all said the same thing: It's slower but we're OK. When pressed they told me that the main chunk of their business comes from people that NEED medical help. These people are sick, or injured in serious ways. For truly NEEDY people medical care is a must have.

However, a good chunk of medical profits come from people that WANT medical care. These are the people that require less work but pay the same fees. Picture a worried mother who's child has a cold. The doctor is with them for only 10 minutes, does nothing other than ask them to check back if the cold continues more than 2 weeks, and still collects his fee. This appointment is the cream of the doctor's business.

But with the economy struggling people are simply choosing to tough it out longer. Less visits to the doctor. Less elective procedures. Less medical expenditures. Today, when a doctor says "surgery might fix that wrist" people (like me) tend to reply "I'll give it a few months first to make sure this is something that is worth a big check."

Thankfully for doctors we all still get sick, and injured, and will continue to NEED medical care.

But enter the new health plan that the current administration is proposing. I think it is safe to say that any government health plan means more government intervention in the industry as a whole. This intervention leads to the following side effects for business:

1. More paperwork and generally higher administration costs
2. Pricing pressure as the government attempts to cap costs for patients

Some of this intervention could be very good for consumers. I sure wish it didn't cost $3,000 to have my wrist worked on. But then again, getting an 3D image of the inside of my wrist using magnetic resonance technology is pretty freakin' cool. It has allowed my doctors to pinpoint the problem (torn cartilage) and prescribe more accurate treatment. And even though it has been expensive, I can't imagine how painful it would be to get approval for such a thing in a government run program. And even if I could get approval, would the staff and equipment be as well trained or well taken care of?

If costs go up for doctors, and prices come down, they will make less money. Making less money means that they will hire less help and/or pay their staff less. Doctors making less money will also have less money to invest in equipment purchase and repair. So the result of doctors making less money is worse medical care for all of us. Capitalism 101.

If we want great medical care (and cool 3D pictures when we need them) then we need to incent the people that take the risks on such technologies with profits. In short, we really NEED medical care to be profitable. And generally, the more profitable it is, the better the care will be.

What am I doing about it? This morning I bought the UltraShort Medical Fund (RDX), effectively shorting (selling) the overall stock exchange value of the medical industry. My chips are down, now we'll get to see what happens. I just can't see how government intervention in health care is a good thing for public companies, and this administration has made it clear that there is a fight coming over health care. Let's all hope I lose this bet. It won't do me much good to make some cash if the overall quality of my medical care goes down. The hedge just isn't that effective, nor can I afford to hedge a large enough portion to fairly protect my lifelong exposure to the risk of poorer care.