Political risk may be the devil of business. Policy risks in the health care industry are in common. In the last round of the presidential election cycle, Hillary’s “Cut drug price” made the US health care stocks under pressure. Year-to-date, the Democratic presidential candidates have once again touched sensitive issues, and “Medicare for All evaporates” US health care stocks by $28 billion in 2019.
What is “Medicare for All”?
According to the plan, private insurance in the United States will be cancelled, and federal health care plans for people aged 65 and over will be extended to all Americans. Private insurance cannot avoid adverse selection and needs to focus on risk management. Therefore, only large groups such as the government have sufficient bargaining power to reduce the price of drugs and the costs of other suppliers.
Many Democrats support Medicare for all legislation, in which Senator Sanders has the greatest influence on the market. On April 12th, Sanders named the most comprehensive insurance company and pointed out that “your greed has come to an end.” One week later, when Sanders was in the campaign for the presidential candidate, the host sought the support of the audience to transfer the existing private medical insurance to the government management to get a response. And Sanders later said, “If you are sick and tired of your private health insurance company, raise your hand.”
“Domino effect” in the health care industry
“Medicare for All” is not the biggest risk of health care. Many people think that this is just a slogan and cannot be supported. The reason is that trust funds covering health care program inpatient services are expected to exhaust themselves in 2026. In order to supplement and expand the fund, it is necessary to raise taxes, otherwise the patient welfare needs to be cut.
From the process of Affordable Care Act, most consumers are reluctant to damage the current health care benefits and doctors. This means that if the original medical security system is overthrown, it will be seriously destructive and face all kinds of troubles. At present, major Democratic leaders are reluctant to support the “Health Medicare for All” program. For example, House Speaker Pelosi is inclined to improve the Affordable Care Act
The impact of “Medicare for All” on investors
” Medicare for All ” has become the campaign policy for many Democratic candidates, which means that the health care reform before the US election will continue to be the focus of the market. If the possibility of the Democratic Party’s governance increases, the valuation of the overall health care industry may continue to be under pressure.
However, the decline in valuation gives investors the opportunity to take the initiative to invest. Although the health care tradition is classified as a defensive sector, many companies have similar high growth characteristics like technology. First, the fundamentals of the managed healthcare industry remain stable. In recent years, many companies have used technology to provide comprehensive services to increase market share, so that patients enjoy quality services and companies increase corporate income. Second, gene therapy and immunotherapy are in a period of rapid innovation. In 2018, the US Food and Drug Administration approved 59 new therapies, the highest number in a single calendar year, driving the share price of biotech companies.
In summary, the valuation of US health care stocks is attractive, and active funds can bring additional benefits to investors. Investors should not place too much emphasis on media reports, and the long-term growth potential of health care has not changed.