How should investors view Medicare-for-All?

We’re hearing a lot these days about “Medicare for All.” I’ve heard investors say that a Democratic victory in the upcoming 2020 presidential election presents a significant threat to the healthcare industry. Major industry players are warning the public to be wary of a looming single-payer disaster (here’s a Bloomberg article elaborating on United Health Group’s characterization of MfA as a “wholesale disruption of American Healthcare”). What are we to think? Should the healthcare industry panic or is this reaction premature?

Without question, rapid transition to a single-payer system would mean major change for the industry. I don’t intend to argue the merits or demerits of a single-payer system. The purpose of this commentary is to explore the probability of a single-payer system being enacted as a result of the upcoming 2020 election. 

Among many other consequences, a single-payer system would dramatically impact, if not eliminate, the private insurance industry. One would assume that the employer, individual, medicare advantage and managed medicaid markets would essentially combine into a large, involuntary pool of covered lives. However, as you’ll read below, this isn’t necessarily the case. The threat of this, however, sends chills down the spines of those participating in and around the health insurance industry.

Lets evaluate the facts. MfA can only happen if Democrats retain the House and win both the Senate and White House. In that circumstance, Democrats would then need to build a coalition including more moderate members of their caucus to pass MfA legislation. What’s the likelihood of each of those events happening?    

1.   Who wins the White House? Your guess is as good as mine. It’s extremely difficult to predict the outcome of the 2020 presidential election. History does suggests that incumbent presidents have a strong likelihood (2:1 odds, in fact) of being re-elected (here’s a Vox article on the subject). As Vox points out, conventional wisdom emphasizes the economy as the driving factor in an incumbent’s viability. If the US economy maintains its vigor, it would seem that Trump will be difficult to defeat. But, of course, the opposite is true should we fall into recession (here’s a CNN commentary on that scenario). Others point out that the biggest issue in this race is not the economy or policy reform, but Donald Trump himself (here’s a CNBC survey of small business owners on this subject). Trump is perhaps the most polarizing political figure we have seen in the US in decades. For this reason, one could argue that normal rules simply don’t apply to this election. A huge, and perhaps record-breaking, turnout is expected in 2020 (here’s what The Atlantic has to say about 2020 turnout) though its difficult to predict which party will most benefit from this. If Democrats can successfully harness their powerful anti-Trump energy, they will certainly mount a strong campaign for the White House. At this early point, with so many important variables yet to be determined, the presidential election outcome is impossible to predict.  

2.   Democrats will struggle to gain a majority in the Senate. The situation in the Senate is simpler to analyze. Republicans currently hold 53 Senate seats. Democrats hold 45 with an additional 2 seats held by independents (who look and act much like Democrats). Democrats will need to win at least 3 seats and the White House to control the senate (remember, the Vice President can break tie-votes in the Senate). In 2020 there will be 34 seats up for grabs. Republicans hold 22 of the 34 seats in play, so they theoretically have more to lose. However, most pundits consider 20 of those races safely in republican hands. The remaining 2 Republican seats up for re-election are in states (Maine and Colorado) that Hillary Clinton won in 2018. These races will be hotly contested. On the other hand, Democrats will need to defend a seat which they won by special election in Alabama, a state which Trump won by 30 points in the 2016 election. Should they fail to hold this seat, a scenario that seems quite possible, they’ll need to pickup a 4th seat to win a majority (assuming they also win the White House). This means that in addition to winning both of the weaker Republican-held seats, they’ll also need to pick up 2 additional Republican seats that are in ostensibly safer positions. For this reason, most pundits do not consider control of the Senate “in play” at the moment. Democrats must have control of the Senate to make significant healthcare reform progress. Of course, its still quite early and anything could happen between now and the election. Here’s a good LA Times article which touches on much of what I’ve said above. 

3.  Should Democrats win both the White House and Senate, it remains unclear that there is political support for a single-payer solution within the party. The current sense among pundits is that MfA, as promoted by Bernie Sanders during the 2016 Democratic primary, has gained remarkable momentum in the 2020 primary race. In addition to Sanders, Elizabeth Warren, Kamala Harris and Kirsten Gillibrand have each endorsed a sweeping single-payer restructuring of the US healthcare system. Joe Biden and Cory Booker, on the other hand, have endorsed incremental plans that build upon the ACA. Many polls suggest that the electorate supports something called “Medicare for All.” However, as this CNBC or this HuffPo article suggest, it’s actually unclear how much support a single-payer system has within the electorate. Certainly the concept is most popular among progressive Democratic voters. However, when those in favor of “Medicare for All” were asked if they would be willing to give up their private insurance or increase the national debt (both of which would occur in a single-payer plan), voter support for MfA meaningfully declined. It’s apparent that “Medicare for all” means different things to different people. Perhaps some view it simply as expanding health insurance coverage to all citizens, which is quite different than the elimination of private insurance entirely. The point is, MfA is a popular concept among progressive democrats and has gained traction in the primary race, but it has not really been tested, vetted or defined within the broader population. Furthermore, a consensus among elected Democrats as to exactly what MfA is, or should be, has not emerged (here’s an interesting Pew Research article which explores this topic). Its premature to assume that if the Democrats enjoy complete victory in the 2020 election they will actually follow through with a sweeping single-payer plan.  

So what does all of this boil down to? 

Look, healthcare reform is a very important election issue among registered Democrats and will likely remain so until access is broadened in some manner. Furthermore, the ACA has not accomplished what its authors intended - extending healthcare access to all Americans. On the other hand, many Americans (moderate Democrat and Republican voters) are hesitant to create an involuntary system that could limit personal control of healthcare. Thus, what seems most likely in the long run is a compromise system that maintains private options but also extends accessibility to most, if not all, citizens. 

In the short run, a sweeping, single-payer overhaul of the US healthcare system seems unlikely due to the very real political hurdles that progressive Democrats face to enact such legislation. But healthcare industry participants shouldn’t rest easy. MfA is “out of the bag” and we should acknowledge that this is a turning point in the industry. And the cry for MfA, in my opinion, will remain until the unnecessary complexities, inefficiencies and profit-seeking in the industry are moderated.  If the agonizingly slow pace of change in the industry doesn't soon accelerate, there is no doubt in my mind that dramatic, fundamental changes will occur. I just don't think it happens in 2020.

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