With the 2020 election right around the corner, the MACM research team and I recently spent time conducting a pulse check on the healthcare sector for our “Beat the Bogey” YouTube series. Indeed, healthcare is usually at the forefront of debate during any election cycle. In fact, a recent Wall Street Journal poll had nearly 25% of all respondents citing healthcare as the #1 issue for the government to tackle. MACM dug in to a sector that seems to generally be under attack by politicians and the media to better understand the landscape for investors and consumers in general.
Background: Healthcare & the Affordable Care Act
Believe it or not, it’s been nearly a decade since the ACA was passed into law. It may not feel like it though, as the ACA actually only began implementation in 2013 given the complexity and scope of the changes being made. That said, how did this landmark bill impact our healthcare system? Surely sick and low-income consumers have been big winners, as the bill precluded health insurers from denying coverage for pre-existing conditions, and implemented subsidies for a large swath of lower-income Americans. As a result, the rate of insured Americans shot up from 82% to more than about 90% within the first few years after the ACA was implemented. However, health insurance premiums have risen swiftly since 2013, doubling in many instances, as insurers have been forced to cover more sick people and provide a higher floor of minimum coverage benefits (i.e. maternity care). For those consumers not being subsidized, paying for health insurance has become an increasingly difficult burden to bear.
Politicians: What are the Proposals?
As always, politicians on both sides of the aisle have much to say about what should be done with our healthcare system. In fact, the Trump administration has already taken steps to dismantle the ACA by repealing the individual mandate, which had required people to purchase health insurance or pay a tax. There’s also a case running through the judicial system which could potentially end the ACA entirely, where a judge found that the remainder of the ACA is not severable from the individual mandate – that is, one can’t exist without the other. In this case, the repeal of the individual mandate would necessarily cause the whole ACA to be repealed.
The Trump administration would unsurprisingly prefer to see the whole ACA dismantled, favoring the private market to operate efficiently on its own. Payors would once again be able to provide a full range of benefits, so consumers would not be forced to pay for more insurance than they want. However, Trump would still arrange specialized coverage pools for pre-existing and high-risk patients, coverage for which has been one of the most universally praised aspects of the ACA.
On the democratic side, there are effectively two camps: those that favor government run Medicare-for-All in some form, and those that would rather prefer to see full reinstatement of the ACA. Front-runners Warren and Sanders support a single-payor, government run Medicare- for-All system, in which private insurance is effectively eliminated. On the other hand, leading candidate Biden would continue to permit private insurance, and seek to ensure all the tenets of the ACA are implemented (i.e. the individual mandate).
However, while the parties debate which health insurance model to use, both sides uniformly continue to harp on high drug prices, among other criticisms of the sector – all of which serves to create a fair amount of uncertainty over the healthcare space.
Industry Breakdown: Headwinds & Tailwinds
After reserving a certain amount of caution for the healthcare sector generally amidst the politics of an election cycle, what remains of note in the different industries?
Healthcare payors are facing difficulty adjusting to enrollment trends after the repeal of the individual mandate, while also dealing with the potential for a very uncertain future in a Medicare-for-All world. However, some payors have had recent success with vertically integrating their businesses, helping them better control costs of care. United healthcare, for example, has rolled both providers (OptumHealth) and prescription drugs (OptumRX) into its business.
Pharmaceutical companies are dealing with a cloud of uncertainty around drug pricing, as both political parties seek to reduce drug costs. The Trump administration also seeks to index prescription drugs to an “international price index” plan, slashing prices in the process. Of note, however, is the aging and longer-living US population, supporting a strong customer base for this industry. The biotechnology space faces similar concerns as political pressure to keep prices lower dampens investor hopes and may be stifling future innovation.
Device makers have been the best performing group of late, with significant expectations being built up around healthcare innovations. Research and development spending has seen a significant uptick in recent years. Indeed, consumers are perhaps more closely linked to healthcare via wearables and other devices than ever before. However, the extent of exciting healthcare devices in the pipeline remains to be seen, and high investor expectations have left quite a bit of downside if there is disappointment.
See More on MACM’s YouTube Channel
To see our full pulse check on the healthcare sector video, click here.
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