- According to health care sector leader Eddie Yoon, the economics of the health care industry prevent a massive transformation, regardless of who's in the Oval Office.
- A Biden win could put more regulatory pressure on the industry but would not likely lead to structural change of the health care industry.
- A Trump win would potentially boost health care stocks as Medicare would likely continue to operate in its current form.
- A legal challenge to the Affordable Care Act's individual mandate provision is currently on the docket for the US Supreme Court session on November 10.
Elections and your money
What difference could the US election make in the outlook for health care?
Viewpoints met up with Eddie Yoon, health care sector leader and portfolio manager of Fidelity® Select Health Care Portfolio (FSPHX). His take:
A Biden administration could put more regulatory pressure on the health care industry but would likely not lead to structural change. A Trump reelection would potentially boost health care stocks given their attractive relative valuation versus history and reduced uncertainties on the direction of health policy.
Bottom line: The economics of the health care industry prevent massive structural change from happening in the sector regardless of who's in the Oval Office. However, if the US Senate remains Republican, under either a Trump or Biden administration, then the outlook for health care stocks generally improves post-election.
Here are highlights from a recent interview with Yoon:
What would a Biden or Trump victory mean for the health care sector?
Yoon: For the health care sector, the real issue right now in the market is what happens in the Senate. If the Senate turns Democratic by a narrow margin, then the next question is going to be: Where does health care fall in terms of the domestic priorities that Joe Biden is going to pursue over his first 2 years in office?
Recall that President Obama made health care a priority in 2008–2009. And it cost him politically—a supermajority in the Senate and then in the first midterm election in 2010, the House of Representatives turned Republican. As vice president, Joe Biden was a part of that effort, so he's likely mindful of what it took politically to pass the Affordable Care Act.
If you look at the current Democratic platform, "Medicare for all" or some kind of a single payer health care option is not included.
There has been discussion of a public option, and getting rid of the noninterference clause as part of Medicare, which would allow Medicare and the government to negotiate drug pricing. A move like that could negatively impact health care stocks.
Lastly, a Biden administration could find support for proposals to expand the ACA with a premium tax credit for middle class families. However, if the Senate stays Republican, the probability of major changes diminishes, which could provide relief to the sector.
Yoon: On the flip side, I think if President Trump gets reelected and the Senate remains Republican, then health care stocks could go up. That's because Medicare and the ACA would likely continue to operate in their current form along with a reduced likelihood that health care industry regulations would increase.
Since he first ran for office, President Trump has vowed to repeal the ACA and lower drug prices by allowing the legal importation of prescription drugs from Canada and other countries where prices are lower. With a Republican Congress, he may have the support to undo the health care law, but lowering drug costs may prove difficult.
Although a legal challenge to ACA's individual mandate provision is currently on the docket for the US Supreme Court for November 10 and a new justice may be sworn into the court soon, it is uncertain what changes, if any, would be made to the existing law.
What kind of regulatory or health insurance system change might be coming after the election?
Yoon: The economics of the US health care industry prevent a massive transformation from happening in the sector. That's going to be the case regardless of who's in the Oval Office. On the margin, I think a Democratic president could put more regulatory pressure on the industry. However, I don't believe it's going to lead to structural change of health care in this country.
This sector is often susceptible to volatility induced by potential increases in government regulation. Today, on a scale from 1 to 10, the regulatory headwinds are probably a 3. If Biden wins with a sweep, then they likely will jump, depending on how the political agenda shapes up.
Major change could also come from innovation. When we look at what's happening on the innovative side of health care, we're actually learning how to deliver a better consumer experience at lower cost and better health outcomes. If that's allowed to play out, it's actually going to be good for the payers of the system (of which the government happens to be the largest with Medicare/Medicaid).
Moreover, about 160 million people in the US are insured by employer-sponsored health insurance. Although patients generally don't love doing business with their insurance company, they're generally healthy and they don't really want things to change when it comes to health insurance coverage.
Is the health care industry making progress on COVID-19 treatments and mortality rates?
Yoon: Yes. Remember, we didn't have any drugs at the start of the pandemic in the US, but today we actually have therapeutics and drug candidates in the later stages of clinical development. This therapeutic data on testing and treatments will continue to come out over the next several months. We see this effort leading to the potential to have very material therapeutic advances on the market later this year or early next year.
On top of that, you have vaccine trials that are running in parallel around the globe. Data collection is improving and so is the probability of having a vaccine that can eventually serve the world's population. The health care industry and health care providers have now learned to deal with COVID-19. Say there were a hundred people who got sick with COVID-19 in April. If those same hundred people got infected today, the mortality rate would likely be lower, because we know better how to treat this Infection.
Our health care infrastructure is helping society live with COVID-19 circulating in their communities, without having to shut down the economy. The probability of having a national shutdown is extremely low, in my mind.
However, the probability of having local shutdowns and closing bars and restaurants due to social distancing issues is much more likely if things get worse. But the health care infrastructure is improving along with our ability to understand where COVID-19 is having an impact. We now better understand community transmission and we can now test and measure results at the county level. While more needs to be done, we've come a long way since the start of the pandemic.
Is the industry's response to COVID-19 helping to drive innovation in health care?
Yoon: Yes. There is a of lot innovation that's happening as a result of COVID-19. So it's really like COVID-19 is speeding up all the change that would have been happening in the health care space. That rapid clip is being accelerated by years, not months.
For example, look at telemedicine. The technology and acceptance levels of telemedicine by payers, patients, and physicians was moving along normally over the last few years. But we supercharged the access to health care infrastructure in new ways because we couldn't leave our homes. We had to learn how to get the technology in front of doctors. Now doctors tell us that telemedicine is here to stay as an effective way to see patients.
Another illustration of innovation was our ability to scale up an infrastructure from zero to a million-plus tests per day in the US. It was a massive operational challenge to do that. Fortunately, we've witnessed the ability for the health care industry to do that quickly, thoughtfully, and accurately. In a sense, it has created a new multibillion-dollar investment opportunity, thanks to COVID-19.
Just because infections are going down doesn't mean we're going to stop testing. We need to develop a vaccine and we're going to need to develop an antiviral therapeutic treatment. So this is a new market that wasn't there before. Remember, health care companies aren't going to make money off COVID initially. They are not engaged in vaccine development to make a profit. They're doing this to help the world through this global pandemic. But ultimately, there's going to be a very large market for COVID-19 treatment and testing downstream.
Are hospitals returning to business as usual?
Yoon: Hospital volumes are still below where they were in the Q1 2020. When the crisis hit in Q2, hospitals shut down on elective procedures—traditionally strong revenue drivers for the health care ecosystem. This trend is now normalizing and we are seeing some elective procedures recover sharply as hospitals get back to treating patients in their communities.
In some cases, people were afraid to see their doctor or seek treatment and avoided getting medical care. For example, there were stories of people that were having strokes in their homes and not going to the hospital because they were worried about catching COVID. That seems to have gone away.
The upside of this is that some people who are chronically ill can now continue to see their physicians because the government has relaxed the burden of regulations around telemedicine. This helps make sure that the chronically ill people are getting their medications and taking care of themselves.
However, some people with certain cancers continue to go undiagnosed because there's a backlog of prescreenings since many people feared seeking treatment during the height of the pandemic. That's slowly starting to change. Volumes are starting to come back, but overall, this is pretty difficult to quantify right now.
Is it too early to talk about post-election winners and losers?
Yoon: Probably. Picking who the winners and losers are going to be is nearly impossible given all the uncertainty. But let's go back to the fundamental point that we've lived through election cycles where health care has been a very important issue for decades. Through that period of time, health care stocks have done phenomenally well. That's because it's the private sector that is driving innovation to help solve the core problems that the entire health care sector is facing today and tomorrow.
Here's an overview of health care issues, based on 4 different election result scenarios:
|Republican sweep||President Trump has previously vowed to repeal the Affordable Care Act and lower drug prices by allowing the legal importation of prescription drugs from Canada and other countries where prices are lower. With a Republican Congress, he may have greater support to undo the health care law, but lowering drug costs may prove difficult.|
|Republican White House with divided Congress||Democrats in the House would likely block efforts to repeal the Affordable Care Act, if Republicans decide to revitalize this effort. And differences over how to reduce drug prices could make passage of a bipartisan bill difficult.|
|Democratic sweep||With a Democratic Congress, a Biden administration could find support for proposals to expand the Affordable Care Act with a premium tax credit for middle class families and a public health insurance option like Medicare, lower the Medicare eligibility age from 65 to 60, and expand Medicaid in 18 states.|
|Democrat White House with divided Congress||With a divided Congress, health care legislation could be stalled. But a Democratic administration could reverse some Republican-led changes to the Affordable Care Act and Medicaid through increased regulation of the health care industry.|
For illustrative purposes only. Source: Fidelity Investments