The Other Healthcare Divide: Healthcare Fluency
The health industry will be the largest creator of wealth in the 21st century . Yet the explosive growth in the health industry could create a new wealth divide. People often talk about the healthcare divide in terms of access to care. It’s now time to discuss the healthcare divide among workers, businesses and investors in terms of wealth generation.
For workers, healthcare education and expertise will be the major factors in achieving success in the healthcare economy. This expertise is currently rationed out to workers through professional schools, training programs and credentialing mechanisms. While such rationing may help to maintain appropriate standards of practice, it limits access to the knowledge to succeed in the healthcare economy. Colleges have limited course offerings in healthcare, and virtually no healthcare instruction exists in K-12 education.
Similar to the better-publicized issue of technology illiteracy fomenting a digital divide, healthcare illiteracy will create a healthcare-knowledge divide. The state of healthcare education promises divergent job prospects, favoring those who have healthcare expertise over those who don’t. Job growth in the U.S. healthcare sector has consistently outpaced job growth in the rest of the economy, adding an average of 23,000 new jobs each month over the past year.
For businesses, the capacity to participate in markets for healthcare will be a major determinant of future growth. Consumer and technology companies have established or are establishing healthcare arms of their businesses. Examples include Johnson & Johnson, Qualcomm, 3D Systems, and Clorox, to name just a few. Other consumer companies have begun to add health as a value proposition to their products. Examples include omega-3 in food, VOC-free interior paints, minimalist shoes, healthful apps in consumer electronics, health-promoting mattresses and UV-protecting sunglasses. Look for wellness and health offerings from many other industries including automotive, real estate, travel and leisure. Companies ignoring the healthcare economy do so at their own peril.
For investors, exposure to the healthcare asset class could be a major differentiator of long-term returns. Despite the strong case for growth in healthcare, many portfolios remain underexposed to healthcare investments. This is due to lack of domain expertise, fears of regulation and a bias against growth investing as opposed to value investing. To date, fears of regulation killing the healthcare market have proven wrong. Every major regulatory change over the last half-century has had no long-term impact on the logarithmic trend lines of increased healthcare consumptions. While the sector is volatile, the NASDAQ Biotech Index has outperformed the S&P500 Index over the past 1, 3, 5, and 10 years. Given the increasing average age of populations in the developed world, healthcare innovation and spreading prosperity, signs point to continued exponential growth of global healthcare consumption.
While those who are underexposed to healthcare investment risk getting left behind, there is an even worse (some would say a “nightmare”) scenario. Many workers potentially face an unexpected double-whammy or even a triple-whammy. First imagine lacking the training to compete for jobs in the healthcare economy, or working for a company that lacks a competitive position in the healthcare market. Next, imagine that the worker’s company pension fund underperforms the market due to insufficient investment exposure to healthcare. For them the healthcare wealth divide may turn into a healthcare Grand Canyon. What are the potential remedies?
For institutions, prudent exposure to healthcare investments could enable them to at least keep pace with the breakneck growth of the healthcare economy. Indeed, for private and public pension funds including social security, investing in healthcare companies could be the ideal natural hedge to their growing liabilities. The healthcare industry is, after all, directly raising pension fund liabilities by increasing human lifespan. For individuals, the healthcare knowledge gap needs to be closed through systematic, expanded access to healthcare education for K-12 children and adults alike, perhaps through online and other channels. The cost of improving the public’s healthcare fluency could be high, but the cost of healthcare illiteracy is bound to be much higher.
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