Our US Public Policy Strategist explains the potential impact of
the upcoming presidential election on the healthcare sector,
including whether the outcome is likely to drive a major policy
shift.
----- Transcript -----
Welcome to Thoughts on the Market. I’m Ariana Salvatore, Morgan
Stanley’s US Public Policy Strategist. Along with my colleagues
bringing you a variety of perspectives, today I’ll focus on what
the US election means for healthcare.
It’s Tuesday, September 17th at 10am in New York.
Around elections what we tend to see is voters rank healthcare
pretty high among their priority list. And for that reason it’s
not surprising that it generates significant debate as well as
investor concern – about everything from drug pricing to
potential sweeping reforms. We think that the 2024 election is
unlikely to transform the US healthcare system. But there are
still policies to watch that could change depending on the
outcome. We outlined these in a recent note led by our equity
research colleagues Erin Wright and Terence Flynn.
To start, we think bipartisan policies should continue
uninterrupted, regardless of the election outcome. Certain
regulations requiring drug price and procedural transparency, for
example, which affect hospitals and health plans, are unlikely to
change if there is a shift of power next year. We’ve seen some
regulations from the Trump era kept in place by the Biden
administration; and similarly during the former president’s term
there were attempts at bipartisan legislation to modify the
Pharmacy Benefit Management model.
There are some healthcare policies that could be changed through
the tax code, including the extension of the COVID-era ACA
subsidies. In President Biden’s fiscal year [20]25 budget
request, he called for an extension of those enhanced subsidies;
and Vice President Kamala Harris has proposed a similar measure.
As we’ve said before on this podcast, we think tax policy will
feature heavily in the next Congress as lawmakers contend with
the expiring Tax Cuts and Jobs Act. So many of these policies
could come into the fold in negotiations.
Aside from these smaller potential policy changes, we think
material differences to the healthcare system as we know it right
now are a lower probability outcome. That’s because the creation
of a new system - like Medicare for All or a Public Option -
would require unified Democratic control of Congress, as well as
party unanimity on these topics. Right now we see a dispersion
among Democrats in terms of their views on this topic, and the
presence of other more motivating issues for voters; mean[ing]
that an overhaul of the current system is probably less likely.
Similarly, in a Republican sweep scenario, we don't expect a
successful repeal of the Affordable Care Act as was attempted in
Trump’s first administration.
The makeup of Congress certainly is important, but there are some
actions that the President can leverage unilaterally to affect
policy here. For example, former President Trump issued several
executive orders addressing transparency and the PBM model.
If we look at some key industries within Healthcare, our equity
colleagues think Managed Care is well positioned heading into
this relatively more benign election cycle. Businesses and
investors are focusing on candidates' approaches to the Medicare
Advantage program and the ACA Exchange, which has subsidies set
to expire at the end of 2025.
Relative to prior elections, Biopharma should see a lower level
of uncertainty from a policy perspective given that the Inflation
Reduction Act, or the IRA, in 2022 included meaningful drug
pricing provisions. We also think a full-scale repeal of the IRA
is unlikely, even in a Republican sweep scenario. So, expect some
policy continuity there.
Within Biotech, the path to rate cuts is likely a more
significant driver of near-term Small and Mid-Cap sentiment
rather than the 2024 election cycle. Our colleagues think that
investors should keep an eye on two election-related factors that
could possibly impact Biotech including potential changes to the
IRA that may impact the sector and changes at the FTC, or the
Federal Trade Commission, that could make the M&A environment
more challenging.
As always, we will continue to keep you abreast of new
developments as the election gets closer.
Thanks for listening. If you enjoy the show, please leave us a
review wherever you listen to podcasts and share Thoughts on the
Market with a friend or colleague today.
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