In This Issue: Is Health Care Bad For Our Financial Health?: The U.S. spends more of its GDP on health care than any other major country, and the percentage is rising rapidly. Health care hit 15% of GDP in 2005, up from 10% a decade ago and 5% in the 1960s. If the current trend continues, health care spending will reach 35% of GDP and 36% of federal outlays (versus 20% today) in 2040 as the ranks of retirees swell and the percentage of the population covered by Medicare increases to 25% from the current 14%.As Europe's Health Spending Rises, Sovereigns Will Suffer, But Private Health Care Should Thrive: Like the rest of the world-whether developed or developing-Europe can't hide from the coming age wave. Demographic changes resulting from the baby boom generation's retirement over the next decade and the sustained increase in the average age of populations thereafter will be felt all across Europe. An Aging Population Challenges U.S. State Budgets And Renews Interest In Health Care Reform: Providing health care for the poor, the aged and the disabled, and grappling with the uninsured population have presented budget challenges for all states. Most states are required to balance their budgets annually, and, as a result, have aggressively turned to health care cost containment initiatives and reform efforts as a means of managing competing spending pressures. Aging Population Causing Gray Hair For Corporate Health Care Credits: Perhaps no industry sees more opportunity to cash in on the aging of the U.S. population than the health care business. Yet paradoxically, companies in search of this golden future have made a variety of strategic and financial choices that have the potential to damage their credit quality. So far in 2006, Standard & Poor's has lowered two-thirds more ratings than it has raised for its U.S. corporate health care issuers-a trend that could continue in the year ahead. As We Age, To What Extent Will Medicare Pay For Our Nursing Home Care?: As the U.S. baby boomer population approaches senior citizen status, the question of who will pay for nursing home care for the elderly becomes increasingly relevant. Reimbursement risk has long been a concern for this sector of the health care industry. In 2004, Standard & Poor's analyzed the impact on nursing homes if the average Medicare daily rate declined by $28. This original analysis turned out to be overly harsh, as we assumed there would not be a Medicare rate increase in October 2005; essentially, the early estimate was more reflective of a worst-case scenario. Pharmaceutical Supply Chain Basking In The Glow Of US. Population's Golden Years: The aging of the U.S. population and the related expected increase in U.S. drug spending hold mostly positive credit implications for pharmaceutical manufacturers and the players along the pharmaceutical food chain-pharmacy benefit manufacturers, drug wholesalers, and pharmacy retail chains. With An Eye On The Aging Population, Advanced Medical Optics Is Poised For Growth: Prolonged spending by senior citizens may benefit many companies and industries in spawning new or improved technologies and services. Advanced Medical Optics Inc. serves as a case in point. The company has grown to $1 billion in annual revenues-a milestone. While organic growth has come from the company's initial cataract, refractive, and lens care products, acquisitions have broadened the company's portfolio. Catastrophic Longevity: Managing The Insurance Risks-And Opportunities-Of Increasing Lifespans: For life insurers offering products, such as annuities and long-term care insurance, that provide future streams of payouts to policyholders, the so-called age wave has the potential to become a tsunami. This concern is amplified because employer-based pension plans and the federal Social Security program-once older citizens' financial safety nets-can no longer be relied on to meet all their financial needs. As The U.S. Population Ages, Health Insurers Are Seeking Out The Opportunities Among The Challenges: The U.S. health insurance industry has much to be happy about, having enjoyed a favorable regulatory environment and beneficial cost trends so far this decade. However, health insurers' most pressing fear is that legislators might use a heavier hand in mandating benefits, setting rates, and establishing underwriting practices. J.D. Power Praises Prescription Drug Plans, But Profits Are Still Pending: The results of a J.D. Power and Associates study prove to the health insurance industry and specific participants that Medicare Part D is a viable, brand-enhancing program-yet competitive dynamics, operating infrastructure, and adequate government funding are other important factors for sustained profitability. | 
