Who will resuscitate health care?
Post-election ESG signs point to status quo.
As the dramatic 2020 presidential election comes to an end, the Health Care sector has found itself cast as both hero and villain. Amid fears of a second Covid-19 wave, health-care providers are at the front line of defense and biopharmaceutical companies are working around the clock to bring the most important vaccine of the 21st century to the world in record speed.
Despite these humanitarian efforts, the Health Care sector was trading at a decade-low valuation relative to the broad market heading into the election. The fear of a Democratic sweep leading to strict drug price reforms and dismantling of the managed-care industry was a factor behind the sector’s stock price declines. Election uncertainty once again placed health care at a political cross-roads with material social-factor implications. While all signs point to a new tenant in the White House, it’s becoming clear that a widely predicted Blue Wave did not materialize, diminishing prospects of dramatic changes to the U.S. healthcare system.
What a difference a year makes
The Covid-19 pandemic has claimed more than 1,200,000 lives globally and brought economic and social interaction to a standstill. Drug companies responded quickly, launching therapeutic treatments and swiftly developing innovative vaccines. Given the political pressure surrounding a forthcoming vaccine launch, it will be interesting to see how leading vaccine manufacturers price and distribute the product. Biopharmaceutical companies need to think long term to provide worldwide distribution since market share and economic value will accrue to the firm who forges the right balance between access and affordability.
Last winter the pharmaceutical industry went from facing increased drug pricing regulation to being the only long-term solution to combat Covid-19. Unlike most health-care reform topics, affordability of prescriptions has bipartisan support on Capitol Hill. Leading up to the election, a variety of proposed regulatory actions centered on encouraging price competition, controlling inflation and increasing access. Most polls and prognosticators raised expectations of a Blue Wave, which was viewed by the market as more draconian for biopharma pricing. Instead, we are likely facing a divided Congress, which historically translates into political gridlock. Unfortunately, this doesn’t resolve rising health-care costs that consume an ever-greater share of the average family’s wallet amid trying economic times. A Biden administration could score a bilateral win in the public’s eyes by finding a way to reduce American’s out-of-pocket prescription expenditures.
If no “public option,” then what?
Some were predicting a Blue Wave would lead to the end of private health insurance as we know it. A Biden administration would seek to expand the reach of Obamacare, but consensus support for a public option is lacking among moderates on both sides of Congress. Congressional resistance means status quo for health-care payers and providers since anything revolutionary would certainly come with insurmountable legislative and budgetary headwinds.
The ultimate objective for any health-care policy should be access to care in an efficient delivery system. Expansion of government programs (Medicare and Medicaid) would decrease the 30 million uninsured people in America. Access to care should increase if Biden were to amend the opt-in age for Medicare and expand state Medicaid program eligibility. Worth noting, managed-care players have rapidly consolidated market share in recent years while diversifying into non-insurance business lines, thereby gaining greater scale and control of the continuum of care delivery. Many of them have significantly expanded their government platforms serving as a new growth driver which could position leaders in the space as part of the long-term solution.
For markets, the hope of an efficacious vaccine coupled with a divided government may lead to a rebound in health-care sentiment. As the decade long political back-and-forth over the Affordable Care Act has shown, legislative bottlenecks mean significant progress toward a single-payer system and drug pricing reform won’t happen overnight. With the predicted Blue Wave turning out to be more of a ripple, the next four years may bring status quo for investors in their assessment of the long-term sustainability of the Health Care sector.