Why Healthcare REITs Beat Traditional Health Insurance Stocks (And How to Invest in Both)

Welltower Inc. (NYSE: WELL) has returned 89% over the past three years, while UnitedHealth Group (NYSE: UNH) delivered 45% during the same period. Both companies profit from America's aging population, but one owns the buildings where healthcare happens, while the other processes the payments.

Most investors think about healthcare investing through the lens of pharmaceutical companies or insurance giants. That's missing a massive opportunity in healthcare real estate investment trusts (REITs) — companies that own hospitals, senior living facilities, and medical office buildings.

The Hidden Healthcare Investment Everyone Overlooks

Healthcare REITs own the physical infrastructure of American healthcare. When you visit a doctor's office, get surgery at an outpatient center, or move into assisted living, there's a good chance a healthcare REIT owns that building and collects rent from the operator.

These companies benefit from two unstoppable trends:

• An aging population that needs more medical care
• Healthcare services moving from expensive hospitals to cheaper outpatient facilities

The numbers tell the story. By 2030, all baby boomers will be over 65. This demographic shift creates steady, predictable demand for medical real estate.

Healthcare REITs vs. Health Insurance Stocks: The Performance Gap

Here's where things get interesting: healthcare REITs have outperformed traditional healthcare stocks over the long term, but nobody talks about it.

Let's compare the big players:

Healthcare REITs (5-year returns):

• Welltower: 87%
• Ventas (NYSE: VTR): 43%
• Healthcare Realty Trust (NYSE: HR): 31%

Health Insurance Stocks (5-year returns):

• UnitedHealth Group: 156%
• Anthem (NYSE: ANTM): 78%
• Humana (NYSE: HUM): 89%

Wait — those insurance numbers look pretty good, right? UnitedHealth crushed it.

But here's the catch: insurance companies face regulatory pressure, changing government policies, and unpredictable medical costs. REITs just collect rent checks.

The Stability Factor

Healthcare REITs typically offer dividend yields between 3-6%, paid quarterly like clockwork. Welltower hasn't cut its dividend since 2009, even during the pandemic when nursing homes faced massive challenges.

Insurance companies? Their dividends fluctuate based on profitability, which swings with medical loss ratios and government reimbursement changes.

The Contrarian Case: Why Everyone Gets Medical REITs Wrong

Most financial advisors steer clients away from healthcare REITs because of the "nursing home stigma." They remember the horror stories from COVID-19 when skilled nursing facilities got hammered.

This thinking is outdated.

Modern healthcare REITs have shifted their portfolios away from traditional nursing homes toward:

• Outpatient surgery centers
• Medical office buildings
• Senior housing (independent living, not skilled nursing)
• Life science facilities (think biotech labs)

Welltower, for example, only has 23% of its portfolio in skilled nursing facilities. The majority sits in senior housing and outpatient medical facilities — both growing segments.

The Amazon Effect on Healthcare Real Estate

Amazon's push into healthcare actually helps REITs. When Amazon opens same-day pharmacy delivery or virtual care services, it still needs physical locations for:

• Blood draws
• Imaging services
• Minor procedures
• Prescription pickup points

These services require medical-grade real estate, which REITs provide.

How to Actually Invest in Healthcare Real Estate

Skip the individual stock picking unless you want to spend hours reading 10-K filings and analyzing occupancy rates.

Option 1: Broad Healthcare REIT ETFs

The Pacer Benchmark Data & Infrastructure Real Estate ETF (NYSE: SRVR) includes healthcare REITs alongside other infrastructure plays. It charges a 0.60% expense ratio and gives you diversification.

But honestly? The pure-play healthcare REIT options are limited in ETF form.

Option 2: Pick the Top Three

If you want targeted exposure, buy equal positions in:

1. Welltower (WELL) - The largest healthcare REIT with the most diversified portfolio
2. Ventas (VTR) - Strong focus on senior housing and medical office buildings
3. Healthcare Realty Trust (HR) - Specializes in medical office buildings near hospitals

This gives you about $300 minimum investment if you buy one share of each (prices as of late 2024).

Option 3: The Hybrid Approach

Here's what I actually recommend: split your healthcare allocation 60/40 between REITs and traditional healthcare stocks.

• 60% in healthcare REITs for stable dividends and real estate exposure
• 40% in a healthcare sector ETF like the Health Care Select Sector SPDR Fund (NYSE: XLV)

This captures both the stability of real estate and the growth potential of healthcare innovation.

The Tax Angle Nobody Mentions

REIT dividends get taxed as ordinary income, not qualified dividends. For someone in the 24% tax bracket, this means paying $240 in taxes on $1,000 of REIT dividends versus $150 on qualified dividends from regular stocks.

Solution: Hold healthcare REITs in tax-advantaged accounts like IRAs or 401(k)s where the tax treatment doesn't matter.

When Healthcare REITs Actually Suck

Don't buy healthcare REITs if:

• You need growth over income (tech stocks will beat REITs in bull markets)
• Interest rates are rising rapidly (REITs get crushed when bond yields spike)
• You can't handle boring 6-8% annual returns

REITs aren't sexy. They won't double in a year. They're the minivan of investment vehicles — practical, reliable, and not much fun at parties.

The Next 12 Months: What to Watch

The Federal Reserve's interest rate decisions will make or break REIT performance in 2024-2025. When rates drop, REITs typically surge as investors chase higher yields.

Also watch Medicare Advantage enrollment numbers. Higher enrollment means more revenue for senior housing operators, which benefits REITs that own these properties.

Start with one share of Welltower this month. Track how it performs compared to your other investments. You might be surprised how steady those quarterly dividend payments feel compared to the wild swings in your growth stocks.