Our analysts Ariana Salvatore and Erin Wright explain the pivotal
role of healthcare in negotiations to end the government
shutdown.
Read more insights from Morgan Stanley.
----- Transcript -----
Ariana Salvatore: Welcome to Thoughts on
the Market. I'm Ariana Salvatore, Morgan Stanley's U.S. Public
Policy Strategist.
Erin Wright: And I'm Erin Wright, U.S.
Healthcare Services Analyst.
Ariana Salvatore: Today we'll talk about
what the U.S. government shutdown means for healthcare.
It's Thursday, October 30th at 12pm in New York.
Thus far, it seems like markets haven't really been paying too
much attention to the government shutdown.
Obviously, we're aware of the cumulative economic impact that
builds every week that it lasts. But we haven't seen any movement
from the political front either this week or last, which signals
that it could be going on for a while longer. That being said,
the end of this month is an important catalyst for a few
reasons.
First of all, you have the potential rollover of SNAP benefits.
You have another potential missed military paycheck. And most
importantly, the open enrollment period for healthcare plans.
Polling is still showing neither side coming out on top with a
clear advantage.
Absent that changing, you probably need to see one of two things
happen to have any movement forward on this front. Either more
direct involvement from President Trump as he wraps up the APEC
meeting or some sort of exogenous economic event, like a strike
from air traffic controllers.
Those types of events obviously are difficult to predict this far
in advance. But up until now we know that President Trump has not
really been involved in the debate. And the FAA seems to be
operating a little bit with delays, but as usual.
So, Erin, let's pivot to what's topical in here from a
healthcare policy perspective. What are investors that you speak
with paying the most attention to?
Erin Wright: You bring up some important
points Ariana. But from a policy perspective, it's very much an
always top of mind for healthcare investors here. Right now, it
is a key negotiating factor when it comes to the government
shutdown.
So, the shutdown debate is predominantly centered around the
Affordable Care Act or the healthcare exchanges. This was a part
of Obamacare. It was a program where individuals can purchase
standalone health insurance through an exchange marketplace.
The program has been wildly popular. It's been wildly
popular in recent years with 24 million members. Growing 30
per cent last year, particularly with enhanced subsidies that are
being offered today. So those subsidies are expected to expire at
the end of this year, and those exchange members could be left
with some real sticker shock – especially when we're going to see
premium increases that could, on average, increase about 25 to 30
percent, in some states even more.
So, folks are really starting to see that now. November 1st will
be a key date here as open enrollment period begins.
Ariana Salvatore: Right. So, as you
mentioned, this is pretty key to the entire shutdown debate.
Republicans are in favor of letting the expanded subsidies roll
off. Democrats want to restore them to that COVID level
enhancement. Of course, there's probably some middle path here,
and we have seen some background reporting indicating that
lawmakers are talking about a potential middle path or
concession.
So, talk me through what's on the table in terms of negotiating a
potential compromise or extension of these subsidies.
Erin Wright: So, we could see a permutation
of outcomes here. Maybe we don't get a full extension, but we
could see something partial come through. We could see something
in terms of income caps, which restrict, kind of, the level of
participants in the AC exchanges. You could see out-of-pocket
minimums, which would eliminate some of those shadow members that
we've been seeing and have been problematic across the space. And
then you could also grandfather in some existing members that get
subsidies today.
So, all of those could offer some degrees of positive. And some
degrees of relief when it comes to broader healthcare services,
when it comes to insurance companies, when it comes to others
that are participating in this program, as well as the
individuals themselves. So, it's really a patient dynamic that's
getting real here.
A lot is on the table, but a lot is at stake with the potential
for the sunsetting of these subsidies to drive 4 million in
uninsured lives. So, it is meaningful, and I think that that's
something we have to kind of put into perspective here.
So, would love to know Ariana though, beyond healthcare, what are
some of those key debates in terms of the negotiations around the
shutdown?
Ariana Salvatore: Healthcare really is
central to this debate. So aside from just the ACA subsidies that
we talked about, some Democrats have also been pushing for a
repeal or rollback of some of the pieces of the One Big Beautiful
Bill Act that passed earlier this year. That was the fiscal bill
of Republicans passed through the reconciliation process –
that included some cuts to Medicaid down the line. So, there's
been talk around that front.
I think more of a clear path on the subsidies front, because that
seems to be something that Republicans are treating as an
absolute no-go. Some of the other really key debates are around
just kind of how to keep the ball rolling while we're still in
the shutdown.
So, I mentioned SNAP at first, the potential release of some
contingency funds there. Again, the military paychecks are really
critical. And, of course, what this all means for incoming data,
which is really important – not just for investors but also for
the Fed, as it kind of calibrate[s] their next move. In
particular, as we head into the December meeting. I think we got
a little bit of a hawkish surprise in yesterday's meeting, and
that's something that investors were not expecting.
So, obviously the longer that this goes on, the more those risks
just continue to grow, and this deadline that we're talking about
is a really critical one. It's coming up soon. So we should have
a sense of how our prognosis pans out in the coming days.
Thanks for the conversation, Erin.
Erin Wright: Great talking to you,
Ariana.
Ariana Salvatore: And to our audience,
thanks for listening. Let us know what you think by leaving us a
review wherever you listen. And if you like Thoughts on the
Market, tell a friend or colleague about the podcast today.
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