Will Health-Care Reform Hurt Investors?

• 78% are in favor of letting Medicare and other governmental
  entities negotiate with pharmaceutical companies for lower prices on
  drugs.
• 69% of all adults like the idea of requiring all children to be covered by insurance.
• 60%
  think positively about a national health insurance exchange, where
  people could choose from plans offered by private insurers and others.

That's the good news -- at least for consumers.

Where's our crystal ball?

The bad news
here is that there's quite a bit of uncertainty around this issue, and
that some health-care-focused companies may end up suffering.

For example, as my Foolish colleague Brian Orelli recently explained, the Obama administration's health-care proposal calls for "insurers such as Humana (NYSE: HUM) and UnitedHealth Group (NYSE: UNH)
to bid for Medicare Advantage members rather than use the current
formula that helps the companies rake in 14% more than the cost of
government-sponsored Medicare."

That may end up putting pressure on their profit margins. It could
be great for American consumers, but not so great for Humana and
UnitedHealth shareholders.

If drugmakers end up having to sell their wares for lower prices, their profit margins, too, will shrink:

Data: Yahoo! Finance.

It's true that these margins are fairly generous. But with concerns
about future patent expirations and thinning pipelines of new drugs,
many of these companies could see margins erode even without
health-care reform.

Bye-bye, $3 trillion

It's hard to
envision how much of a bottom-line impact health-care reform could have
on our economy, especially since the scope of reforms has yet to be
decided. But that hasn't stopped some from making estimates.

The Commonwealth Fund Commission on a High Performance
Health System, for instance, issued a report proposing a comprehensive
set of reforms that could slow the growth in health spending by a
whopping $3 trillion in a decade.

Let's ponder that for a moment. That averages out to $300 billion
per year, which is more than the following companies take in annually,
combined.

Data: Yahoo! Finance.

That might make you gasp, but it shouldn't. It's not like these
particular companies will get wiped out. Instead, some or many of them
may simply see revenue drop. (Note that our entire health-care spending
has been pegged by some to be about $2 trillion per year, with about
30% of that spent on hospitals, 21% on doctors, and about 10% on drugs.)

And don't forget about those companies that could stand to benefit from potential reforms:
generic-drug makers and companies providing information technology to
the health-care system, for example. And increased health coverage
could lead to more drug sales, as more people would be able to afford
medicines.

When assessing how developments in the push for health-care reform
will affect your portfolio, it's mandatory that you put on your
thinking cap. (It's up to you whether aspirin is needed.) Now is a time of great opportunity, and you shouldn't bypass researching stocks in the health-care sector out of fear about change.

© 2009 UCLICK, L.L.C.