The U.S. healthcare system is currently experiencing a period of significant challenges, marked by rising costs for consumers and financial pressures within the industry.
Systemic Pressures and Industry Performance
Challenges have intensified, affecting both individuals seeking medical care and the companies operating within the sector. Shares in UnitedHealth Group, a major healthcare conglomerate, have decreased by 44% from the previous year. This occurred following an event on December 4, 2024, when UnitedHealthcare CEO Brian Thompson was shot. This incident contributed to public scrutiny regarding U.S. healthcare costs and claim denials, impacting UnitedHealth Group's public perception and initiating closer regulatory examination of the company and the broader industry. The S&P 500's healthcare index has underperformed the overall market, and some financial analysts anticipate continued volatility.
Rising Costs for Consumers
Healthcare expenses are projected to increase for many individuals. Premiums for health insurance obtained through government exchanges under the Affordable Care Act are expected to rise significantly as subsidies are set to expire at the end of the year, affecting approximately 24 million people. Premiums for employer-sponsored plans, which cover 154 million individuals, are also forecast to increase.
Several factors contribute to these rising costs:
- Pharmaceutical Advancements: Development of more effective, higher-priced treatments for conditions such as cancer and obesity.
- Increased Demand: A return to seeking medical care post-pandemic has created higher demand, enabling providers and hospitals to adjust prices upward.
- Industry Consolidation: Mergers among hospitals, doctors' offices, and insurance companies have often led to increased pricing power for the remaining entities.
A recent Gallup poll indicated that nearly half of U.S. adults expect to be unable to afford necessary healthcare services in the coming year. This sentiment is exemplified by individuals, such as Jennifer Blazis, who reportedly postpone non-urgent medical procedures due to financial considerations, despite having what is described as a comprehensive insurance plan.
Financial Challenges for Healthcare Businesses
Even major entities within the healthcare sector are facing financial pressures. UnitedHealth Group, which operates as both an insurer and a provider of various healthcare services (including employing or overseeing 10% of U.S. doctors and processing 20% of prescriptions), is a component of the Dow Jones Industrial Average.
The company has experienced increased costs within its Medicare Advantage businesses, where private insurers manage care for seniors and receive government payments. These operations are now subject to a Department of Justice investigation. UnitedHealth Group's CEO was replaced in May, and the company has announced plans to reduce its Medicare Advantage patient base by approximately 1 million. Despite these challenges, investor Warren Buffett's Berkshire Hathaway acquired over 5 million shares in UnitedHealth Group in August. The company's chief financial officer, Wayne DeVeydt, has expressed a goal to restore the company's performance, with CEO Stephen Hemsley projecting "higher and sustainable, double-digit growth" starting in 2027.
Broader Industry and Investor Outlook
Healthcare spending accounts for approximately one-fifth of the U.S. economy. Historically, healthcare stocks have been regarded as "defensive" investments by investors. While the S&P 500's healthcare index has lagged the broader market over the past year, it has shown periods of outperformance during recent market volatility.
Analysts have varied long-term outlooks for the sector. Some, like Julie Utterback of Morningstar, consider many healthcare stocks to be "undervalued" but caution that a turnaround may require significant investor patience, forecasting a potentially "murky outlook" for the next several years before long-term recovery.