Healthcare in the United States is a perennial issue that has even more gravity in the runup to an election. Matters ranging from drug prices to potentially more sweeping overhauls of the health system can affect voters and investors in myriad ways. While the 2024 election is unlikely to lead to major changes, some policies could shift depending on the result, according to Morgan Stanley Research.
Bipartisan measures—including regulations requiring transparency for hospitals and health plans as well as efforts to manage drug pricing—should stay in place regardless of the election outcome. Without a majority in Congress, either candidate’s party would be limited in the scope of changes they can push through.
“Some healthcare policies might be changed through the tax code, including Affordable Care Act (ACA) premium subsidies that were introduced in 2020 as part of the COVID relief effort, extended in 2022 and are set to expire at the end of 2025,” says Michael Zezas, Morgan Stanley’s Global Head of Fixed Income and Thematic Research. “But major structural changes, such as Medicare for all or a public option, would require unified Democratic control of Congress as well as party unanimity on the preferred path, which seems unlikely.”
Morgan Stanley has looked at each party's possible policies regarding key areas of importance to the healthcare sector and what they could mean for investors.
Continuity of Care: For most Americans, healthcare is centralized around managed care organizations (MCOs)—i.e., health insurance plans—that determine what patient care is covered and administer services through a network of providers, generally via large publicly traded entities or government-sponsored programs.
Based on historical trends, this sector looks to be in a solid position going into the election: In the last eight presidential contents, MCO stocks outperformed the S&P 500 by an average 12% in the six months following an election and by an average of 20% after a year.
The main points of interest for investors in MCOs are how each candidate plans to handle the expiring ACA Exchange subsidies and the Medicare Advantage program, which allows patients to buy coverage for the federal health insurance program through private providers.
MCOs involved in Medicare Advantage are expected to do well if former President Trump wins, as the Centers for Medicare and Medicaid Services (CMS) under a second Trump administration may offer more favorable terms. Those more tied to the ACA Exchange could fare better under a victory by Vice President Kamala Harris, which could increase the likelihood that enhanced subsidies would be extended beyond next year.
The view for hospitals and healthcare providers should be clearer at the end of 2025, as the deadline for healthcare exchange subsidies approaches. A Trump administration that potentially eliminates ACA subsidies could put hospital volumes and revenues at risk, while a Harris administration that maintains the subsidies could help support positive trends in enrollment and volumes.
Drug Prices in Focus: While drug costs usually face scrutiny from both parties, provisions in the Inflation Reduction Act (IRA) allowing for drug-price negotiations with drug manufacturers makes it less likely that new policies will significantly affect pricing. As a result of the law, drug distributors are now less directly affected by drug pricing than they were in the past. More than 95% of branded drugs are under fee-for-service contracts, providing greater clarity.
While implementation of the IRA is still in early days, analysts believe it to be a manageable headwind for the parts of the healthcare sector that are affected by the law. However, the market’s perception of potential changes to the IRA—either an expansion under Democratic control and a scaling back or repeal if Republicans are in power—could influence stock prices in the short term. But unless a single party controls the presidency and both houses of Congress, any impact on stocks is likely to be modest as investors assume the IRA will remain basically unchanged.
Vital Signs: Additional election-related factors could be relevant to the healthcare sector more broadly. Republicans’ potential import bans and tariffs on China could weigh on medical technology stocks, for instance.
Meanwhile, the candidates’ varied positions on corporate tax policy—Harris proposes an increase from 21% to 28%, while Trump wants a cut to 20%—is worth considering, since the 2025 expiration of the Tax Cuts and Jobs Act (TCJA) will likely prompt changes under either candidate. A Trump win may benefit companies with high taxes and heavy spending on research and development, such as biopharma. In a Harris victory, profitable companies that pay high taxes could be negatively affected, especially if her administration raises corporate tax rates or accelerates or expands Medicare drug pricing negotiations.
“That said, we see the most likely outcome to be a split congress regardless of who emerges victorious in the executive branch,” says Zezas. “That outcome could essentially negate the possibility of major changes like a significant overhaul or removal of the IRA, a repeal or replacement of ACA or for Medicare for All—which Harris has moved away from, it’s worth noting.”
