Even before the COVID-19 pandemic brought healthcare into the spotlight, global spending on healthcare was on the rise. That spending is forecast to continue to grow faster than global economic output over coming decades.
The global population is projected to grow by around 2 billion by 2050 (to 9.7 billion), before potentially peaking at 11 billion by 2100[i].
As the world’s population grows, so too do the demands on healthcare. This is a consequence of both the increase in the number of people and changing demographics.
The projected population increase is not evenly spread, with the total population of low-income countries expected to double between 2020 and 2050[ii]. These countries will need to invest substantially in their healthcare systems just to maintain current levels of coverage.
Even greater investments will be needed to make progress towards achieving universal health coverage in line with the UN’s Sustainable Development Goal (SDG) Target 3.8 (to “achieve universal health coverage, …. access to quality essential health-care services and access to safe, effective, quality and affordable essential medicines and vaccines for all.”)
While the populations of first-world countries are not expected to increase so dramatically, the ageing populations of these countries pose their own healthcare challenges.
These trends are likely to drive increased spending on healthcare, which has already been growing strongly in many economies over recent decades.
In the US alone, total (public and private) healthcare spending increased from 6.2% of GDP in 1970 to 16.8% by 2019[iii].
Source: OECD Health Statistics, June 2021
According to OECD projections[iv], health spending among developed economies is forecast to reach 10.2% of GDP by 2030, compared with 8.8% in 2015.
US healthcare spending is projected to reach 20% of GDP by 2030 – or twice the OECD average.[v] Growth in healthcare spending in emerging markets is likely to be even stronger as a share of GDP.
Source: Healthcare Spending Projections to 2030, OECD, May 2019. Actual outcomes may differ materially from projected outcomes.
For investors, the broad area of healthcare offers the potential for long-term growth. It is also generally regarded as a defensive sector, with the larger, more established companies in the sector having the potential to provide stable earnings during times of economic uncertainty, such as those we now face.
Investors may also do well to consider the trends that are taking place within the overall sector. Spending is likely to increasingly favour digital-health solutions over the traditional way of delivering healthcare, as increasing internet and smartphone penetration combine with technological innovation to improve efficiency, expand access, and shift the focus from treatment to prevention.
Seeing and assessing patients has long relied on direct human-to-human contact. Cheap and easy to use video-conferencing technologies – sometimes referred to as ‘telehealth’ - now mean many of these interactions can be conducted online.
Early in the COVID-19 pandemic, demand for telehealth services skyrocketed when physical access to health professionals was restricted. Even after the pandemic eased, by mid-2021 the use of telehealth for outpatient/office visits had settled at almost 40 times more than pre-Covid, or around 13 to 17% of all such visits[vi].
According to Fortune Business Insights, the global telehealth market was worth US$90 billion in 2021, and is projected to grow to US$636 billion by 2028, implying compound annual growth of 32%[vii] over this period.
Another area of technological innovation is real-time remote monitoring of patients through internet-connected medical devices and wearables. This reduces the need for patients to travel to hospitals or doctors for check-ups and can result in more timely interventions when patient conditions warrant.
The digitisation and storage of patient health records is another innovation that promises to radically improve care, by making patient histories and other critical information readily available.
Data systems can improve the efficiency of care by allocating scarce medical resources – such as beds, doctors and equipment – to where they are most needed and by reducing the incidence of unnecessary or inadequate treatments.
The OECD estimates that US$1.3 trillion, or 20% of annual healthcare expenditures across OECD countries, reflects inefficiencies due to poor administration .
While investors can access several established companies in the healthcare sector on the ASX, including CSL (ASX: CSL), Cochlear (ASX: COH) and Ramsay Healthcare (ASX: RHC), most of the significant companies in the sector are listed overseas.
Investors looking for exposure to the sector across a range of geographic regions and industry sub-sectors may like to consider ETFs, which enable access to a portfolio of companies in a single ASX trade.
There is a range of ETFs offering exposure either to the broad healthcare sector, or to themes within the sector. In making that choice, investors should ask questions such as:
[Editor’s note: Do not read the following ETF references as recommendations. Do further research of your own or talk to a licensed financial adviser before acting on themes in this article].
One ETF that provides exposure to the broad global healthcare sector is the BetaShares Global Healthcare ETF – Currency Hedged (ASX: DRUG), which invests in a portfolio of the world’s leading healthcare companies, including Johnson and Johnson, Pfizer and Roche.
Investors interested in the digital health and telemedicine thematic can consider the BetaShares Digital Health and Telemedicine ETF (ASX: EDOC), which provides exposure to a portfolio of leading global digital healthcare companies from sectors such as telehealth, medical devices, wearables, remote patient monitoring, and digital healthcare software.
[i] United Nations Department of Economic and Social Affairs Population Division (2021), Global Population Growth and Sustainable Development
[iii] OECD Health at a Glance, 2021
[iv] Health Spending Projections to 2030: New results based on a revised OECD methodology. OECD Health Working Papers No. 110. May 2019.
[v] Health Spending Projections to 2030: New results based on a revised OECD methodology. OECD Health Working Papers No. 110. May 2019.
[vi] Telehealth: A quarter-of-a-trillion dollar post-COVID reality? McKinsey & Company, July 2021
[viii] OECD, “Healthcare in the 21st Century,” 2019.