Can Healthcare Companies Withstand a Blue Wave?

Democrats could sweep the November elections according to many independent polls and political experts. What would that mean for the healthcare and pharmaceutical sectors, which have shown sensitivity to the political landscape?

A blue wave isn’t likely to bring transformational policy

Importantly, even in a “blue wave” scenario, Democrats don’t appear likely to gain more than a narrow majority in the Senate. With a narrow majority, the most moderate members of the controlling party tend to set the agenda. I believe transformational progressive policies are less likely in this scenario. That said, Democratic presidential candidate Joe Biden has publicly endorsed several progressive healthcare policies. Below, I break them down and assess their potential impact on the healthcare and pharmaceutical sectors.

Expanding the Affordable Care Act

  • What it involves: Enticing holdout states (those that have not expanded Medicaid coverage under the ACA) to expand Medicaid coverage with 100% federal matching in the first three years of expansion. It also involves functional reform to strengthen the ACA by reversing Trump administration policies that dampened Medicaid enrollment and exchange outreach.
  • Why it matters: Expanding Medicaid provides additional coverage for the uninsured. Eleven states still have not expanded, including highly populated states like Florida and Texas.
  • Industry impacts: I believe hospitals would benefit from expanded insurance coverage (increased reimbursement) and government-focused managed care organizations would gain scale and increased negotiating power.
  • Likelihood: High. Many policies can be accomplished with executive orders and others could potentially gain bipartisan support.

Public Insurance Option

  • What it involves: The federal government entering the business of providing insurance coverage for any American who wishes to participate. These plans would compete directly with commercial and employer-sponsored plans.
  • Why it matters: Proposals are calling for the public insurance option to provide reimbursement rates that closely resemble those of Medicare fee for service. This could cause significant financial hardships across the hospital and provider space.
  • Industry impacts: I believe this could be a meaningful negative for hospitals, which could experience a large mix shift from higher-margin commercial payers toward thinner-margin public plans with rates tied to Medicare.
  • Likelihood: Low. Hospital lobbying groups are spearheading strong opposition. Additionally, the timing is difficult given the ongoing COVID-19 pandemic and the stress it has added to non-profit and rural hospital systems.