The presidential elections induce the biggest uncertainty for health insurers and hospitals in 2020 due to the potential shifts in policies over the next four years. Given the differing policies of both the Republican and the Democratic parties, there brews a heightened element of anxiety among the sector participants.
This election year, the health insurance and the hospital stocks are confronted with a major political problem, that is, the rising of “Medicare for All” as a polestar for the Democratic Party with the recent caucus win of Bernie Sanders. This might dismantle America's private health care system, which mostly dependent on health insurance companies.
Strong results in New Hampshire, Iowa and Nevada helped Sanders, the Vermont senator, to achieve a landslide victory. The recent developments are likely to make him win the democratic nominations and face Donald Trump in the presidential elections.
The ascension of Sanders as a frontrunner makes the healthcare sector jittery because of his ‘Medicare for All’ plan to reform the U.S. healthcare.
This proposal basically propagates universal health insurance under a single government-run, taxpayer-financed plan. It seeks to eliminate private health insurance, replacing it with a universal Medicare plan, on expectation that the same would reduce administrative inefficiencies and control costs in the health-care system.
Sanders’ lead in the presidential election prompted health insurers to anticipate that his plan would replace the current private insurance policies and eat into their earnings.
Management at UnitedHealth Group Inc. (UNH - Free Report) had earlier stated that the “Medicare for All” would “surely jeopardize the relationship that people have with their doctors, destabilize the nation’s health system and limit the ability of clinicians to practice medicine at their best.”
Health insurance companies have been expanding in Medicare Advantage on the back of its very attractive market and the spending on the same by the government is projected to be $860 billion for 2020. With nearly 10,000 baby boomers aging daily into Medicare, this business provides scope for significant growth.
UnitedHealth Group, which holds the number one spot with more than 25% of the MA market share, has seen its shares drag for the past two days in a row. The stock shed 5.9% of value in yesterday’s trading. Humana still holds the second position and CVS Health (having gained exposure to the MA market with its last-year acquisition of Aetna) occupies the third place. Anthem Inc. (ANTM - Free Report) and Centene Corp. (CNC - Free Report) follows lower in ranks.
Humana, Anthem, Centene, Molina Healthcare (MOH - Free Report) , each also declined 5.1%, 3.6%, 5.7% and 6.6%, respectively.
Moreover, hospital companies like HCA Healthcare (HCA - Free Report) and TenetHealthcare (THC - Free Report) lost 5% and 10.5% due to fears that their revenues could be squeezed if the federal government is the country’s “single payer.”
Year to date, the Zacks Medical HMO industry and the Zacks Medical Hospital industry have lost 10.3% and 9.8%, respectively, underperforming the Zacks S&P composite's decline of 3%.
Meanwhile, if President Donald Trump wins the forthcoming election, his efforts to restructure the Medicaid program — the federal health program for the poor — will cast a shadow of insecurity over the sector.
Though it’s far too premature to determine whether “Medicare for All” has even a modest chance of coming into existence after the 2020 election, the very dose of instability that it creates is enough to keep investors away.
It might even be possible that companies with vast exposure to Medicare business might find ways to ride out the “Medicare for All” ambiguity if the law is tweaked to reserve a substantial role for private companies.
Despite the fact that the sector will see some wild swings in the run-up to the elections, it would be unfair to question the relevant companies’ ability to adapt to changes under duress and ultimately prosper, irrespective of which political is in power. Healthcare companies in the past survived the stringent ACA before, proving their might.
Therefore, investing in the sector during the upcoming 2020 election when it is likely to remain undervalued, may provide a good investment opportunity.
Among the stocks mentioned above, UnitedHealth carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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