Health care sector outlook: Election impact

Differing priorities for Medicare

It’s easier to grasp what’s potentially at stake for investors in November—at the intersection of business and politics—by examining specific subsectors. Take the case of Medicare Advantage, a program in which more than 50% (about 33 million people) of the eligible Medicare population is enrolled.³ Medicare Advantage is a type of Medicare health plan offered by a private company that contracts with Medicare.

Advantage is publicly funded with about $460 billion of Medicare spending⁴ but is privately administered by for-profit managed care companies. Eddie Yoon, portfolio manager of Fidelity^® Select Health Care Portfolio (), notes that the first Trump administration was “more policy friendly toward the Medicare Advantage companies,” which led to an “acceleration of penetration” into the Medicare-eligible population.

Every year the Centers for Medicare & Medicaid Services (CMS) resets Advantage’s base rate, off which private plans adjust their prices. Under the Biden administration, the base rate has not kept up with rising utilization trends, which has presented a headwind for the private insurance companies that administer Medicare Advantage plans. The administration has also reduced flexibility in risk adjustment models, which are used to estimate costs to treat patients each year.

Advantage plans typically include Medicare D, the drug benefit plan that went into effect in 2006. The Inflation Reduction Act of 2022 granted the government the ability to negotiate drug prices directly with the pharmaceutical companies. This will affect prices of 10 of the most expensive medications, starting in 2026 and could expand in scale under a potential Harris administration. “This takes away pricing power for the industry, so it’s pretty material for drug manufacturers,” says Yoon.

With the Inflation Reduction Act, the Biden administration also took further steps to help close the so-called donut hole coverage gap in Medicare D, which could reduce profitability for both pharmaceutical manufacturers and health insurers. By contrast, a second Trump administration might put greater emphasis on allowing rates and prices to be determined by the private market rather than by government policy.

In sum, Yoon says, a second Trump administration might prove advantageous for managed care companies, since the companies that administer Medicare Advantage could have greater flexibility over insurance policy prices and risk coding, and because the new administration could potentially pause or even reverse some of the previous administration’s policies. Yoon adds that market movements seem to show that many investors take a similar view of the prospects for such companies, and how these prospects might shift with election results in November. One company that has illustrated this thesis is UnitedHealth Group (), which leads the Advantage marketplace with a share of more than 25%.