US Election And Healthcare | Tema Insights

Written by David K. Song, MD, PhD, CFA | Oct 10, 2024 12:22:00 PM

Key Takeaways:

Healthcare is a top issue for voters in 2024, and a hugely important and sizeable sector of the economy.
Candidates differ on major issues like drug pricing, health insurance access, and anti-trust regulation – all important for the evolution of the healthcare sector.
Despite nuances, between candidates, the base case is modestly positive for healthcare, unless there is a sweep either way. A Democratic sweep would be negative while a Republican sweep would be positive.
In any electoral outcome, M&A in small and medium biotech could accelerate.

The US healthcare market and politics

The American healthcare market is unique, unparalleled in its structure and complexity. It is big: healthcare spending accounts for over 16% of GDP. There is a separation between patient, payer (largely private or government programs like Medicare/Medicaid), and provider. From a biopharma perspective, it is innovative and this innovation is highly rewarded commercially.

As a result, healthcare is a significant political topic. It ranks second in terms of top issue for voters in 2024 according to Pew¹, though more important for Harris supporters.

The economy is the top issue for voters in the 2024 election

% of registered voters who say each is very important to their vote in the 2024 presidential election

Note: Based on registered voters
Source: Survey of U.S. adults conducted Aug. 26 - Sept. 2, 2024
PEW Research Center

Where do the candidates stand on key healthcare policy issues

Below is a table comparing the relevant healthcare policy areas for the sector and their implications for companies.

Donald Trump

Policy
Issue

Kamala Harris

Trump also supports reducing drug prices. During his presidency, he signed executive orders to lower insulin and EpiPen prices and increase transparency of drug pricing overall. He also approved plans to import drugs from Canada and tried to push through a “most favored nation model” pegging prices to other developed countries. Both proposals were blocked.
Drug pricing has not been a major feature of the 2024 campaign for the former President. Republicans generally dislike IRA and see it as stifling innovation. However, Trump has not been a friend to the pharmaceutical sector during his presidency.

Drug
Pricing

The Inflation Reduction (IRA) Act was a landmark piece of health policy passed under Biden-Harris. It introduced provisions for Medicare to negotiate prices for drugs. It also capped Medicare co-pays, prices of insulin and other essential prescription drugs. Vice President Harris has recently reaffirmed² her commitment to the principles of this Act. An area to watch are so-called pharmacy benefit managers (PBMs). These companies act as middlemen between drug companies and insurance plans, negotiating rebates. They have been singled out in an FTC lawsuit³.

What it means for healthcare stocks and biopharma

We expect incremental pressure on drug pricing regardless of who wins, though this won’t be more than already assumed in market expectations in all scenarios apart from a full Democrat sweep.

Tema invests in biotech innovation which brings value for patients and is relatively immune to pricing pressures. We don’t invest in me-too companies and middlemen that add little value to healthcare outcomes.

Donald Trump

Policy
Issue

Kamala Harris

During his presidency, Trump has been a vocal opponent of ACA, and tried to get it repealed unsuccessfully, before banning the “individual mandate”, a tax penalty for individuals who failed to buy insurance. He was also a big proponent of Health Savings Accounts (HSAs).

The 2024 campaign has continued to see fiery language, though his statements recently talk of “improving” ACA. No clear policies have yet been presented; but he is unlikely to extend subsidies and may reduce marketing investment (a key driver of growth in exchange usage). Generally, Trump is seen as positive for the managed care sector.

Healthcare
Access,
Insurance

The Biden-Harris administration has supported ACA by extending subsidies through 2025. This has led to a record low 7.7% of uninsured in the US in 2023. Harris is widely expected to extend these subsidies further and to strengthen ACA. She is a big proponent of universal coverage and previously supported the Medicare for All Act, which would effectively expand Medicare to all citizens, though it is not a central part of the campaign in 2024. She is also expected to expand Medicare coverage of dental, vision and hearing benefits for seniors.

What it means for healthcare stocks and biopharma

Managed care is one sector that may be impacted depending on who takes office in 2025. Currently, Tema’s healthcare suite does not have major exposure to this sector.

Donald Trump

Policy
Issue

Kamala Harris

Trump has not made much noise about FTC or anti-trust policy apart from his remarks regarding a more lenient stance on energy sector consolidation.

M&A

The Federal Trade Commission, in a highly unusual move, sued and extracted remedies from the merger of Amgen and Horizon Therapeutics. This put a damper on M&A in the sector. Should Harris be elected it is likely she will keep FTC chairwoman Lina Khan in place but it is unclear if the same stance towards M&A in the sector will be maintained.

What it means for healthcare stocks and biopharma

The election is likely either to bring the status quo or a more supportive FTC for M&A. Regardless of outcome we believe small and medium M&A will likely continue.

What does the election then mean for the major healthcare sectors?

What will matter most is if one party achieves a full sweep i.e. taking both House and Senate majorities. This means they will be able to drive the legislative agenda where most of the big changes to healthcare policy are made. Generally, Democrats have been seen as more negative for healthcare companies – introducing the biggest changes in legislation in the last 20 years such as the Affordable Care Act (2010) and Inflation Reduction Act (2021). The table below lays out how Tema sees the various scenarios unfolding.

The base case above is positive for the sector, especially against market expectations. This is because:

The major Acts have already been passed, including landmark pricing negotiations for Medicare. Though these are not positive for the sector, they are well known and priced in. The first batch of ten drugs saw discounts that were better than feared. The market likes certainty.
A lot of policy, on both sides of the aisle, is about expanding access but reducing prices, including from middlemen like PBMs. This should be seen as a positive offset, as volume should counter pricing pressures.
There are nuances between the candidates but what will matter most is whether there is a sweep either way. These outcomes are much less likely and the base case is modestly positive for the sector.
We think there could be change at the FTC which will likely unlock M&A, a major positive for the biopharma sector.

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