Health care is expected to be one of the most important issues in the coming 2020 presidential election, which could lead to a bumpy year for investors, but don’t expect to see any dramatic changes to the U.S. health care system anytime soon.
The nation’s largest drugmakers, pharmacy benefit managers and insurers will be watching a series of bills taking aim at industry practices like surprise billing and drug pricing even though the likelihood of any of them becoming law is slim, according to J.P. Morgan. At the same time, the focus among Democratic presidential candidates on Medicare for All or other health care reforms may create stock volatility in the short-term, following a healthy run up 2019. In the long term? It is much less of a concern, analysts say.
“Running up to the election, generally speaking, health care does underperform, with certain sub-sectors within health care outperforming—such as labs—where there is less political focus than areas like pharmaceuticals or managed care,” Lisa Gill, an analyst at J.P. Morgan, wrote in an outlook published Dec. 17.
The Health Care Select Sector SPDR Fund exchange-traded fund
, which closed at a record high on Monday, are up 18% year to date, while the S&P 500 index
has gained 27%.
Similarly, SVB Leerink analysts view medical suppliers and device makers like Baxter
and NuVasive Inc.
as a “relative ‘safe-haven’ in an election cycle where rhetoric around drug pricing/Medicare-for-All could create some health care debate uncertainty.”
A surprise billing proposal included in the government funding deal was shelved this week until May. Heights Securities’ Hunter Hammond wrote that he’s now “skeptical” of real results around surprise billing and drug pricing.
Last week, the House of Representatives passed Speaker Nancy Pelosi’s drug-pricing bill in a largely symbolic gesture. That legislation is not expected to move through the Republican-controlled Senate or be signed into law by President Donald Trump.
And the Trump administration’s rule-making this fall aimed at requiring price transparency from hospitals and insurers is facing at least one industry lawsuit, filed by the American Hospital Association and others. (The Department of Health and Human Services is required to file its response to the suit by Feb. 4.)
All of that said, legacy health care companies will still face immense pressure from consumers who have grown increasingly frustrated with rising medical costs and an inefficient, opaque system that requires them to now spend more money for the same care.
“If you can’t come to the market with what the consumer wants…you’re not going to win,” J.P. Morgan’s Gill said in an interview.
Consumer dissatisfaction with their health care is the root of the most prevalent topics affecting the industry right now. This includes anger about drug prices and surprise billing, rising support for Medicare for All, and demand for a better consumer experience in medical settings.
While Americans have traditionally resisted the idea of a European-style single-payer health care system, that sentiment is fading. The number of Americans who have a high-deductible health plan is growing, as has the size of their deductibles. A recent Kaiser Family Foundation analysis found that the average deductible has nearly tripled in the last decade, to $1,350 for a single person in 2018 from $533 in 2009.
“The public has experienced a rapidly growing portion of their income being consumed by health care costs, including insurance premiums and deductibles,” Fitch Ratings’ Brad Ellis wrote last week. “It seems unreasonable to assume that the status quo will continue indefinitely.”
Yet analysts tend to agree that the quantity of unanswered questions about a Medicare for All-type model, including details about how it will be funded and if legislation could pass the Senate post-election, is a major sticking point.
Shares of large insurers and managed care companies like Centene Corp.
CVS Health Corp.
and UnitedHealth Group Inc.
rose in the days after Sen. Elizabeth Warren announced her Medicare for All plan in mid-November, in part because she said she wouldn’t plan to push legislation until the third year of her first presidential term.
Gill also sees an upside in a Medicare-for-All world for supply chain companies, like drug distributors and pharmacy benefit managers. A distributor like McKesson Corp.
has higher margins in Europe than it does the U.S., she said. “They’ll shift and change their focus, be more about the clinical program,” she said. “They’ll still be a need for those companies.”