Bernie Sanders, 1; Health Insurers, -$30 Billion

(Bloomberg Opinion) -- Health-care stocks have been under pressure for months as Democrats have proposed aggressive health-care reforms, once-friendly Republicans targeted drug prices, and both parties harangued industry executives in Congressional hearings. This week, the sector took a further hit, and it was partly self-inflicted. 

The catalyst for the rout was health-insurance giant UnitedHealth Group Inc., which used its earnings call to engage with the biggest threat to the status-quo out there: Vermont Senator Bernie Sanders’s proposal to eliminate private insurance in favor of government-run universal coverage. It’s a key part of his campaign for the 2020 Democratic presidential nomination.

On the Tuesday call, UnitedHealth CEO David Wichmann said such Medicare-for-All proposals would create a “wholesale disruption of American health care,” as he called instead for changes within the existing system. He may have felt that by pushing back aggressively, he could take control of the narrative, but the move backfired.

By acknowledging the threat of more wide-scale reform, Wichmann appears to have made it that much more real for investors, who proceeded to erase some $30 billion in market value from the biggest health insurers. At the same time, the pushback may have only drawn attention to how costly and complicated the system is now. While there is merit to the idea of incremental reform, plenty of voters would be just fine with some major disruption.

Bernie Sanders, 1; Health Insurers, -$30 Billion

Ditching insurers, premiums and out-of-pocket costs has potent political appeal, and not just for those on the left. Attendees of a Fox News town hall for Bernie Sanders on Monday night applauded the idea. It’s not too hard to see why, even though those cheers contradicted assumptions about how many conservatives feel about Medicare-for-All.

On Tuesday’s call, Wichmann noted that “health care’s relative burden on society has lessened” for the last 16 months as he defended building on the status quo. If that’s the best stat he’s got, insurers are in trouble. Health care’s burden is still disproportionately high in the U.S. Slightly slower cost growth isn’t an achievement when we spend more than any other country and get worse results.

More than 27 million Americans lack insurance, while many labor under crippling medical debt or are forced by rising costs to ration vital medicine like insulin. Under Sanders’s plan, all Americans – even those who currently have Medicare – would get more generous coverage. And while that would come with higher taxes, no longer having to deal with insurers or pay for drugs and hospital stays would be solid compensation. Many voters could come out ahead in that transfer. 

Wichmann also talked about how Medicare-for-All could potentially hurt doctor-patient relationships, presumably appealing to the 150 million or so Americans who have employer-based insurance. They are a potentially powerful political backstop against eliminating private insurance, and many of them are happy with their coverage.

But insurers can’t count on their monolithic support; it’s not as if the employer market is a low-cost wonderland. Americans switch or lose jobs all of the time, which can force them to change plans and physicians. High-deductible plans shift costs to patients, and cheaper ones often come with the sort of limited choice that insurance lobbyists portray as a dire consequence of a government option. Low-income families with employer coverage spend 14 percent of their income on premiums and care on average, and more than that if a family member is sick. Plenty of people would be open to a system that brings that figure to zero.

Medicare-for-All remains a long shot. Sanders is the only major candidate to explicitly commit to a plan that eliminates private insurers. Moderate Democrats are wary of the plan, which may not pass in the Senate even if Sanders wins in a landslide. There’s not enough detail available about how the program would be paid for, and how it would keep costs down.

There is a case to be made – from both a policy and political standpoint – for a more moderate approach to reform that retains a role for private insurance. In the end, it may win out. But Sanders has clearly amped up the debate; if this week’s stock slide says anything, it’s that health-care companies need to sharpen their arguments.

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.

©2019 Bloomberg L.P.