My oldest son just got his first paycheck not too long ago. It was only a part-time summer job, but he was still excited to tear open that envelope. At least until he saw the payroll deductions that took a bite out his earnings.

I had to explain that a portion of each paycheck is withheld for Social Security and Medicare. I didn’t have the heart to tell him that it will only get worse as an adult once he starts paying for costly private health insurance.

Welcome to the working class.

$2 Trillion In New Spending As Boomers Get Older

According to the Centers for Medicare and Medicaid, per-capita annual healthcare spending now stands at nearly $11,600 per person — or $3.8 trillion total. That figure has tripled since 1990 and now represents almost one-fifth of the nation’s entire gross domestic product (GDP).

Our healthcare industry is larger than the United Kingdom’s entire economic output.

Even by government standards, $3.8 trillion is an astronomical sum. And it’s not going to shrink anytime soon. It’s no secret that an aging population requires more laboratory tests, more prescription drugs, and more medical procedures. Not only do we have 10,000 baby boomers reaching the age of 65 per day, but the senior citizen 80+ crowd is projected to double in size over the next 20 years – it’s a demographic certainty.

Remarkably, healthcare costs are forecast to rise to $5.7 trillion by 2026. That means in less than a decade, we’ll be spending $2 trillion more per year than we already do now. That’s a sobering thought for anyone paying for private health insurance. But from an investment standpoint, I can’t think of another sector with such a long and wide growth runway. Trillions of dollars are being thrown around with no signs of slowing. Opportunities abound, from tiny biotech drug developers to surgical device and lab instrument makers to the insurers cashing all those monthly premium checks.

Of course, this sector is also ripe for buyouts. Take the pharmaceutical industry. Facing the loss of patent protection for core products, deep-pocketed drug makers are gobbling up smaller firms with exciting new therapies to rejuvenate their pipelines.

GlaxoSmithKline (NYSE: GSK) struck first with the purchase of oncology-focused Tesaro. Bristol Myers Squibb (NYSE: BYM) responded with the $74 billion acquisition of Celgene. Eli Lilly shelled out $235 per share (a 68% premium) to scoop up Loxo. Not to be outdone, Abbvie (NYSE: ABBV) decided to team up with Allergan.

These won’t be the last such deals. But today, I want to steer your attention to a different corner of the healthcare world.

The Future Of Medicine Is Happening Right Before Our Eyes…

We live in an era of Facetime, Skype, and lightning-fast 5G internet connections, where video chats with remote friends and family can be done with the click of a button. You might even be one of the millions who dial into regular weekly teleconferences with coworkers.

Why not consult with your doctor or healthcare provider the same way? If it’s just a routine question – and not, say, a broken limb – you can get fast answers from the nearest phone, tablet, or computer. And you can interact with your physician from the comfort of your own home, without driving across town and possibly subjecting yourself to an infectious disease.

That’s literally putting your health in the palm of your hand.

What was once a curious novelty is rapidly becoming a mainstream service. And while many people would gladly pay extra for the convenience, telemedicine can actually save you money. Data collected by 650 patients at Jefferson Health found that virtual doctor visits saved the average patient $121 compared to visiting the clinic – or up to $1,500 if they avoided a hospital emergency room.

At this point, just a small fraction of Americans have taken advantage of telemedicine. But that penetration rate will most certainly climb. First, there’s the convenience and cost savings. A Massachusetts General Hospital study found that nearly four-in-five patients preferred a virtual follow-up meeting to an in-person meeting.

Telemedicine is also far more accessible, particularly to rural patients who don’t live near a primary care doctor. It has been estimated that the average wait for a new patient to see a general physician is 24 days. There is also the issue of uninformed patients clogging up emergency rooms with easily treatable symptoms. Approximately two-thirds of all emergency room visits are avoidable, driving up costs for employers and insurers. Web-based consultations and e-prescriptions can help solve all of these problems.

That’s a big reason why 90% of all mid and large-size employers now offer some type of telemedicine option. Nearly half of all Millennials polled rate telemedicine as a “very or extremely important” option. Surprisingly, we are even seeing increased adoption among Baby Boomers, who aren’t always receptive to new technologies. Physicians are on board as well. Industry surveys reveal that 80% are now using telehealth platforms with their patients, up from just 22% in 2019.

It’s only a matter of time before millions more patients become comfortable meeting their doctor virtually for a quick chat. The Covid-19 pandemic has only accelerated the transformation. Even before shelter-in-place orders, the growth forecasts were jaw-dropping.

According to Fortune Business Insights, the global telemedicine industry generated about $34 billion in revenues last year. But as the technology expands into new arenas (including dermatology, cardiology, and psychiatry), that total is expected to climb at a 24% compounded annual growth rate (CAGR) – skyrocketing to $185 billion by 2026.

Closing Thoughts

Unfortunately, most of the names in this group are privately owned, accessible only to privileged insiders and venture capitalists. But one of the early frontrunners conveniently trades on the New York Stock Exchange. And over the past five years, the stock has soared from $16 to $140 – delivering a massive return of nearly 800%. Yet, there is still room to run.

Bottom line, the healthcare sector will offer investors some of the biggest opportunities over the next few years. You have an ageing population, a massive increase in spending that’s practically locked in, combined with an area that’s ripe (and practically begging) for more innovation.

We’re going to see more new players enter the game with innovative approaches to telemedicine. But that’s just the beginning… Growth-minded investors would be wise to watch this space (as well as the broader healthcare industry) closely in the months and years to come.

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