Trump Will Create New Winners and Losers in Healthcare

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Source: Wall Street Journal
Author: David Wainer
Date: November 6, 2024

For healthcare companies, Donald Trump’s victory means very different things depending on which part of the sector they operate in.

For firms offering plans in the exchanges created by the Affordable Care Act (aka Obamacare), as well as Medicaid plans, it could be bad news. That explains why Oscar Health OSCR -15.21%decrease; which derives most of its business from Obamacare marketplaces, was down 8% Wednesday morning while Centene CNC -3.46%decrease;  a big Medicaid operator, was down 5%. But for businesses operating in Medicare Advantage, the privately run system that mainly serves seniors, a Republican victory is expected to provide major regulatory benefits. Under the Biden administration, insurers focused on Medicare Advantage have faced increased scrutiny from the federal government, such as lower annual rate increases. This came at a time when seniors drove up usage of the plans, leading to lower profitability.

That helps explain why UnitedHealth Group UNH 5.23%increase; the leader in this group, was up 5%, while CVS, which today named a former UnitedHealth executive to lead its Aetna unit, surged 13%. Both have bet big on the growth of the Medicare Advantage market. 

Humana HUM 10.71%increase; a Medicare pure-play, was up 10%. The insurer is benefiting from a sense that two advantageous trends could converge: A more lenient stance from Republicans on Medicare Advantage, and also on antitrust. Talks for a merger between Humana and Cigna could once again be on the table. Wall Street sees that as more likely under Trump, who is widely expected to replace Federal Trade Commission Chair Lina Khan, a staunch critic of megadeals.

The climate shift in the industry could be abrupt and severe for many. Insurers serving the Obamacare exchanges, for instance, have operated in a burgeoning market that was propped up by enhanced subsidies (doled out in the form of tax credits), put in place during the pandemic. These are set to expire at the end of 2025. Oscar’s stock, for instance, had risen about 200% over the past year through Tuesday. HCA Healthcare, a hospital chain that benefits from more government money pouring into Medicaid and the exchanges, was up over 50% over 12 months, before dropping around 5% on Wednesday.

For investors in companies like Oscar or HCA, control of the House of Representatives now becomes the crucial thing to watch.

If Republicans take control of the House after seizing the Senate and the White House, they could allow the ACA subsidies that were passed under Biden to sunset. That would mean a significant portion of the more than 20 million ACA exchange members could drop their coverage, while over 90% would see their costs go up, according to Cynthia Cox, director of the Affordable Care Act program at KFF, a nonprofit health-research group.

But there’s also a good chance that some form of the enhanced premium tax credits for exchange plans would survive if the House stays in the hands of Democrats. That is because Democrats may be willing to negotiate an extension of those tax credits in exchange for extending parts of Trump’s 2017 tax cuts, some provisions of which are expected to expire at the end of 2025 as well, according to Chris Jennings, founder of the lobbying firm Jennings Policy Strategies.

For health-sector companies, Washington, D.C., will have as big a role as ever in picking winners and losers.