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If Hillary Clinton Wins
Aaron Levitt Sep 12, 2016
Given our growing global population, investing in healthcare stocks remains a popular theme. Simply put, more people means an increased demand for more medicine, therapies and healthcare. That powerful demographic trend continues to propel earnings at many of the major healthcare stocks. It’s also propelled stock prices. The HealthCare SPDR ETF (XLV) has surged over the last few years. The large-cap sector proxy is up a staggering 124% over the last five years.
But despite that performance and long-term potential, there are still some hiccups for the healthcare sector. In this case, we’re talking about the upcoming U.S. presidential election.
As one of the biggest homes to healthcare stocks and biggest drivers of global healthcare demand, the upcoming election could sway the fate of the healthcare sector. Both candidates, Hillary Clinton and Donald Trump, have expressed conflicting views on various issues facing Americans and their healthcare needs. Depending on the victor, a different set of winners and losers could emerge from across the industry.
When it comes to Hillary Clinton, those winners are deeply rooted in low costs and wide adoption (and what about Trump? Check out his stance on healthcare here).
While current President Obama gets credit for the United States’ healthcare reform bill, known as the Patient Protection and Affordable Care Act (ACA), Clinton should get a major nod as well. Before there was Obamacare, there was HillaryCare.
During Bill Clinton’s presidency, Hillary was a main force behind the Health Security Act. The 1993 healthcare reform package included an enforced mandate for employers to provide health insurance coverage to all of their employees. Even though it was killed, the measure was the first stepping stone in providing universal healthcare for all Americans. Several of the Act’s provisions ended up making their way into the ACA/Obamacare.
As a result, Hillary has continued to fight to make sure the repeal of the ACA is nothing more than talk. Clinton has also added other proposals to mix including drug coverage/costs, expanding Medicare/Medicaid and boosting coverage/services for mental illness and the poor.
Under Clinton, Obamacare would continue to operate as planned. Republican lawmakers have persisted in their attempts to repeal and end the law, but a Clinton presidency would effectively end those efforts. As a result, the expanded coverage of many previously uninsured Americans would continue to rise.
That’s bullish for those health insurers like UnitedHealth Group, Inc. (UNH ). The key for UNH isn’t so much the private healthcare exchanges – in which many insurers are actually pulling out – but Medicare/Medicaid. Clinton has also offered several measures under the ACA that allow any state offering a Medicaid expansion to receive a 100% match from the federal government. Already, UNH receives the bulk of its income from these sorts of government plans. With this expansion, it should more than cover Obamacare private plan losses and boost revenues/profits.
One of the main sticking points for Clinton and her healthcare plans has been rising drug costs. According to a new report by Federal health agencies, prescription drug spending rose 12.6% in 2014. The Fed’s project that drug costs are expected to rise 7.3% a year, through 2018. Clinton has vowed to cap and stop rising drug costs by targeting pharmaceutical and biotech firms that are overcharging or gouging consumers.
At the heart of Clinton’s battle has been drug maker Mylan (MYL ). MYL owns the patent on the lifesaving EpiPen medicine. The firm, for no apparent reason, has hiked the price from $57 to more than $600 for a pack of two in a matter of seven years. The drug is essential for those who suffer food or bee sting allergies. Without it, some people could die. Clinton has already vowed to probe into MYL’s pricing practices and she supports a recent class-action lawsuit against the firm. If she’s elected that could spell trouble for the drug manufacturer and send shares dropping. Also in the Clinton crosshairs has been Valeant Pharmaceuticals Intl Inc (VRX ), whose entire business model is based on buying older drugs and raising prices.
In order to help combat rising prescription drug costs, Clinton has embraced lower-priced generic medicines. Off-patent generic drugs and biosimilars can often save patients and health insurers hundreds of dollars per prescription. For those citizens who take them daily, that means plenty of health savings over the longer haul.
Under a Clinton plan, generic drug manufacturers should soar as they get more businesses from Medicare/Medicaid and other health plans. Perrigo Company (PRGO ) is one of the largest pure players focused on generic drugs and over-the-counter generic health products. The firm should continue to see its profits grow under a Clinton presidency. As will others, such as Teva Pharmaceutical Industries Ltd (ADR) (TEVA ). TEVA has recently expanded into producing biosimilars of many expensive biotech drugs.
Finally, part of Clinton’s healthcare plans includes expanded coverage for primary care and mental health services for America’s poorest citizens. Often, these people don’t have access to healthcare services – let alone a way to pay for them. After enrolling them in Medicaid under Obamacare, Clinton plans on expanding the availability of clinics and other services for these patients.
If Clinton goes the public-private-partnership route by offering firms subsidies to take on the poor’s needs, it could benefit CVS Health Corp (CVS ). CVS offers a huge network of MinuteClinic walk-in facilities. These facilities offer quick and low-cost healthcare coverage for those citizens who may not have the ability to see a real doctor. By connecting these MinuteClinic to its drugstore operations, CVS has the ability to pick up the prescription revenue, as well as any other needed items to cure the aliment.
The long-term picture for healthcare stocks is pretty rosy. However, under a Clinton presidency, the landscape of the sector could change based on proposed plans. Some of the main winners of the past few years could turn into losers. Her plans to limit drug costs could hurt the major pharmaceutical stocks. However, expanding Medicare and Medicaid rolls will continue to mean more healthcare demand overall.
Find out what would happen if Trump were to win in our If Donald Trump Wins section.
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