Healthcare Policy Analyst Chris Meekins, Institutional Equity Strategist Tavis McCourt, CFA, and Washington Policy Analyst Ed Mills detail how three potential outcomes could affect the industry.
Over the last 40 years, the healthcare sector has usually outperformed the S&P 500 over the terms of both Democratic and Republican presidents. However, different election outcomes have particular policy implications for the industry.
Below, we walk through healthcare policy implications associated with three potential outcomes. It’s worth noting that we believe advancements toward value-based care and a focus on healthcare technology will continue regardless of who wins the presidency.
If Democrats sweep, we see two potential paths forward – one in which the Senate filibuster (the requirement to get 60 votes to proceed to consideration of major legislation) is eliminated and one in which it remains. If it’s eliminated, the perceived risk is likely to be greater than the actual risks, but healthcare as a whole will face headwinds. If it stays, it would likely be seen as a positive for the industry.
If the filibuster is eliminated, it would dramatically expand what Democrats may be able to accomplish on healthcare, which could include the creation of a public health insurance option. The filibuster could be eliminated with a simple majority vote, which we anticipate would occur not on a health reform bill, but instead on something like updating the Voting Rights Act.
While the possibility of a broad, government-run public option might threaten managed care companies and hospitals, we believe the actual result would be something both managed care and hospitals can live with. To pay for Democratic nominee Joe Biden’s health reform plans, pharmaceuticals would likely be in the crosshairs. Debate would center on whether Medicare should be able to negotiate prices.
If the filibuster remains, major legislative changes are likely to only occur through the budget reconciliation process, which requires 51 votes in the Senate but is very limited in what can be included. The biggest change would likely be an increase in taxes, including the corporate tax rate. We anticipate Democrats would use this process to make changes to the Affordable Care Act (ACA) but do not believe they could create a public option through that process. Instead, they are likely to increase the subsidies in the ACA plans to try to expand coverage to those who are uninsured.
The healthcare industry has generally done well with a divided Congress. A divided Congress is unlikely to pass major legislation without the support of those in the industry, which decreases the likelihood of drug pricing legislation or changes to build on the ACA.
If Joe Biden is elected president with a Republican Senate, we believe legislating on anything healthcare related will be rare. Anything accomplished would be bipartisan in nature and largely viewed as positive for the industry. As Democrats push for action to expand ACA subsidies and go after pharmaceuticals, we doubt a Republican Senate would go along, due in part to campaign spending by the pharmaceutical industry.
We’ll watch for action on surprise medical billing if something is not done by the current Congress. We believe Republican senators will be more likely to focus on fiscal restraint, which could put future fiscal stimulus and annual discretionary program increases in jeopardy.
When Congress is divided, presidents try to do more through regulatory actions. We would expect a Biden administration to roll back many of the changes the Trump administration made to Medicaid, the ACA plans, and short-term limited medical plans. We would also expect a Biden U.S. Department of Health and Human Services to try to build on authorities in the ACA through regulatory action to expand coverage to more individuals. More stringent reviews of health system mergers would also be likely.
As noted above, the healthcare sector has generally preferred a divided Congress, as anything accomplished is likely be bipartisan in nature and largely viewed as a positive for the industry. A status quo election outcome would largely continue what we have seen from the Trump administration over the last four years.
We would expect President Trump and House Democrats to continue rhetoric around pharmaceutical prices, but we doubt a Republican Senate would go along, and any substantive changes would likely be stopped by the courts. Battles over spending will likely be heightened, putting in jeopardy the continued growth in spending in areas like the National Institutes of Health.
On the regulatory side, we’d expect the Trump administration to continue on the path seen for the last several years. A broader push against hospitals (price transparency, site neutral payments, etc.) would likely continue despite the pandemic. Continued loosening at the Food and Drug Administration would be expected.
We anticipate the administration would continue advancing actions to try to undercut the ACA and Medicaid programs, but we don’t believe they’d have a material impact. Trade tensions with China would likely remain, as would efforts to decrease the reliance on China for essential medicines.
All expressions of opinion reflect the judgment of Raymond James and are subject to change. There is no assurance the trends mentioned will continue or that the forecasts discussed will be realized.