This little spiel caught my eye because Health Savings Accounts (HSA’s) are in the headlines as a possible beneficiary of the next wave of healthcare reform — with plenty of early indications, at the least, that the Republican party’s “repeal and replace” strategy for the Affordable Care Act will rely to some degree on an expanded role for HSAs.
And since everything runs through an investing lens here, that immediately makes one perk up and say, “who benefits?”
Cabot has an idea, and in trying to sell their Cabot Stock of the Week service ($997/year) they hint at the pick as one of their potential doubles for 2017… here’s how they put it:
“A Quick Look at This Stock of the Week and You’ll See Why I Can Make You this Money Doubling Guarantee
“The opportunity that I’m about to describe could be the closest thing to a sure thing that I’ve seen in the past three years.
“In fact, it’s so big that I’d be willing to bet that this company could give us Tesla-like returns (+690%) over the next four years.”
There must be a rule over at Cabot that every opportunity has to be compared to Tesla… we get similar language just about every time they pick a stock (like Tesla, only in medical devices! Similar opportunity to Tesla, but in solar panels!)… but, of course, our mantra here at Stock Gumshoe is that we disregard the promise of absurd gains (that just pollutes your thinking, you know) and try to look at each stock we find with fresh eyes and some rational thought. We don’t always succeed, to be sure, but that’s the goal… and we can usually at least squeeze a little skepticism into an over-sold story to try to balance things out a bit.
So what else do we hear about this “Stock of the Week?” More clues:
“… this company will become one of the biggest profit takers of President Trump’s “repeal and replace” health care reform.
“How can this be? It’s because the company specializes in managing Health Savings Accounts (HSAs) that are expected to flourish under the Trump Administration….
“Americans opened nearly 20 million HSAs as of June of last year—up 25% from the year before.
“… the company’s stock jumped 112% over the past 12 months on a 41% revenue and 47% earnings growth.”
And the argument for why the stock will rise:
“With the President and Republican lawmakers planning to expand HSAs, you’re not only going to see billions of dollars flow into them but also see our top company’s sales, earnings and stock price skyrocket again. Especially when President Trump makes it easier for HSA holders to pass on their contributions to their heirs tax-free.
“This is why I see this company’s stock price doubling again in 2017.”
The focus on HSA’s is, as I see it, a way to try to create “market discipline” for healthcare in a way that doesn’t really exist for most providers and consumers these days — with Health Savings Accounts people are paying their own money for their health care, at least up to the deductible for the high-deductible health insurance plan that you have to have to qualify for an HSA account (deductibles have to be at least $1,300 a year for individuals).
Therefore the impact, at least as regulators hope, is that Americans, who are pretty good, cost-conscious and careful consumers of other products and services, will become better and more cost-conscious consumers of healthcare services because they will be more intimately involved in paying for the mid-tier things like elective surgeries or treatment for sprained ankles or whatever, and therefore will exert cost pressure on providers of those services (preventive care, stuff like immunizations and annual physicals, is often covered by these plans for free or under a separate, lower deductible, since insurers know that getting checkups and immunizations is still a cost-saving thing for them in the long run… and big high-ticket things like major surgery or chronic illness will often quickly exceed even the $5-10,000 family deductible and be covered by insurance).
I don’t know whether or not it’s working, I haven’t researched it at all, but that’s the idea — that consumers will be better at keeping costs down than are the big health insurers… or, perhaps, that consumers will keep costs down by opting out of treatments or ER visits that might feel less necessary to them, because they’ll be paying — maybe they’ll not go to the ER with the flu, because they know they’ll pay $500 for that when under “regular” health insurance they would perhaps have paid $50 or something like that for an ER visit copay, or maybe they’ll skip the trip to urgent care for the “just in case” broken arm that’s probably just a bad bruise, because the X-ray will cost them $350 out of their HSA instead of a $25 copay.
So who profits from this? Well, HSA’s are offered directly to consumers by lots of banks and investment companies, and plans are offered by many employers who have replaced their traditional health insurance with lower-cost high-deductible plans paired to HSAs, so lots of the same companies that offer health insurance and retirement savings accounts also offer HSA accounts to employers and direct to consumers.
The one being teased here is HealthEquity (HQY), one of the few “pure play” HSA companies that has really tried to take market share in this space. HSAs appeal to lots of people, but they especially appeal to people who are quite healthy and can afford to subsidize their own healthcare to some degree, since the HSA accounts give you a way to save more than your IRA limits and the money can keep building as balances roll over if you don’t spend the money in a given year.
That’s a challenge, of course, if you have relatively high health costs for a few years in a row and actually have to spend that money on broken legs or wart removal or chronic illnesses of whatever kind, but the dream is that you’ll remain healthy and that at least some of the account can compound over decades and give you a nice savings for your healthcare spending in retirement (or other spending — once you’re over retirement age, you can take money out just like it’s an IRA if you still don’t need money for healthcare… though healthcare withdrawals are tax-free and any other post-retirement withdrawals will incur the same taxes as your 401(k) or IRA withdrawals).
And it may be that folks who have always been covered by traditional employer-provided health insurance and/or Medicare may not have much of a perspective on the appeal of HSAs — you can’t contribute to an HSA once you’ve signed up for Medicare, since Medicare is not a high-deductible insurance plan (you can still spend your HSA after enrolling in Medicare, you just can’t add to it), so many newsletter readers (who are in or near their Medicare years) may not pay much attention… but employers and younger folks are increasingly using HSAs and high-deductible plans, voluntarily or not, and there does seem to be some consensus that further healthcare reform will focus more on these plan