Election's End Should Boost Managed Care Stocks

by Leslie Small

In recent notes to investors, equities analysts have suggested that politically, the best-case scenario for the managed care industry might be a Democrat in the White House and a split Congress. Still, they say, the outcome of the upcoming elections is less important than the anticipated benefits of simply moving past the uncertainty that they've generated.

The election and concerns about the Affordable Care Act’s future "kept a lid" on MCO stock prices most of this year, Jefferies analysts David Windley and David Styblo wrote in an Oct. 12 research note. "We think those are starting to come to an end and will improve sentiment and valuation. We believe MCOs rise regardless of election outcome."

In an interview with AIS Health, SVB Leerink analyst Stephen Tanal says that the "overhang" affecting the prices of managed care stocks first took root two years ago. "I trace it back to December 2018 when [Sen.] Bernie Sanders [I-Vt.] started to, let's say, turn up the volume on his campaign," he says. Not long after that, the left-leaning faction of the Democratic Party "got very loud very quickly," culminating in the February 2019 introduction of a Medicare for All bill sponsored by Rep. Pramila Jayapal (D-Wash.).

"That was a really bad month for managed care," Tanal says, regarding stock prices of publicly traded firms. "It's interesting — now, almost two years later, we're completely away from that debate, [but] the stocks haven't fully recovered," he adds.

Before the death of Justice Ruth Bader Ginsburg, a Joe Biden presidency/Democratic Congress was the worst scenario for MCOs because of uncertainty related to Biden's health care agenda, risk of Medicare for All resurfacing, and a potential corporate tax hike, the Jefferies analysts suggested. "However, that's now a hedge against the low-probability but very negative impact of SCOTUS ruling against the ACA," they wrote, referring to latest challenge to the law's constitutionality. "Moreover, Biden's agenda increasingly sounds benign."

But Tanal says if Democrats control the House, Senate and the presidency, "it's much more likely they'll be able to pass meaningful health care legislation." And the industry — and its investors — remain wary of that possibility.

From Health Plan Weekly