Health Care’s Boatloads of Cash Are Safe for Now
(Bloomberg Opinion) -- The 2020 election isn’t entirely settled, but one clear winner has emerged: the health care industrial complex.
Health stocks, led by insurers and drugmakers, have been the darlings of the market since Election Day, soaring by double-digits in some cases. Beforehand, valuations had taken a hit on concern a sweeping Democratic victory would lead to significant policy change that would diminish these behemoths’ market and earnings power. It's now very likely that even if former Vice President Joe Biden wins the presidency as he seems poised to, his more profit-crimping health ambitions won't make it past what’s likely to remain a Republican Senate.
The past few years under President Donald Trump have shown how much money the industry can make from America's health-care status quo. Annual gross profit at the 25 most valuable health companies jumped by about $80 billion over the first three years of his term to more than $650 billion. Its profit now seems likely to expand even further for the next few years. Great for investors, if not so much for the broader population and health-care system as whole.
The U.S. is a critical market for many large health companies, not just because of its size and economic strength, but because it's a spendthrift. Since health coverage is split between different government programs and private sources like employers, there's often little negotiating leverage or ability to control prices. As a result, drugs and procedures cost much more here than in other developed nations.
There was limited change under Trump. He failed to repeal the Affordable Care Act, and executive actions aimed at reining in drug prices and increasing health-cost transparency have had little effect if they've been implemented at all. His legacy is mostly a modest jump in the number of Americans without health coverage resulting from efforts to undermine the ACA and Medicaid, a mismanaged pandemic, and a bunch of lawsuits.
Certainly, nothing happened to rein in the health-care industry’s profitability. The sector has even managed to do well for itself during the pandemic, with profit holding up well compared with many other industries and even jumping for health insurers, telemedicine providers, and testing companies.
Biden is a threat to that upward slope, albeit less of one than a more liberal nominee. He hopes to introduce a government-run public health insurance option that would compete with private plans and pressure pricing throughout the industry. His drug pricing plan would limit the launch prices of new medicines and allow Medicare to negotiate with drugmakers directly. In combination, they could pose a real problem. But all of those plans are likely to die on Republican Senate Majority Leader Mitch McConnell's desk. (The only path to a Democrat-controlled Senate at this point appears to be winning two seats in a runoff election in Georgia, an unlikely scenario.)
There's only so much Biden could accomplish with executive action. Many of his efforts would aim to undo Trump's damage, which might even benefit health companies. He would likely take a harder line on health-care antitrust issues, but if that's the biggest problem, the sector as a whole will be delighted.
Legislation might be possible in areas where there's bipartisan agreement, such as surprise medical billing and drug costs. But any compromise that emerges is likely to be relatively modest and business-friendly.
So congrats, health care investors, you're in great shape. Everyone who has to interact with and pay for care in America has less to celebrate.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Max Nisen is a Bloomberg Opinion columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.
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