Will a new candidate create volatility for healthcare stocks?

With Vice President Kamala Harris now officially the Democratic nominee for this year’s U.S. presidential election — taking over from President Joe Biden, who announced in July he would not seek a second term — healthcare investors may wonder how the last-minute change could impact the outlook for the sector.

For now, we think the answer is, not much.

Short on time, policy

It has been just over a month since President Biden dropped out of the 2024 race and endorsed Ms. Harris to succeed him. As such, the vice president has had little time to put forth policy proposals, and of those announced, most are focused on hot-button economic issues, such as housing affordability and inflation.

For healthcare, Ms. Harris has chosen to focus on reproductive rights, an issue that does not have a direct market impact. She has also highlighted the accomplishments of the Biden administration, namely the Inflation Reduction Act (IRA), which was passed in 2022 and made significant changes around affordability in Medicare, the government health plan for the elderly. These provisions included capping insulin costs at $35 per month and limiting out-of-pocket drug expenses for seniors to $2,000 annually.

What about Medicare for All?

What’s not included in Ms. Harris’s campaign are any proposals to overhaul the U.S. healthcare system, which she made during her previous bid for president in 2020. Back then, the vice president championed a bill that came to be known as “Medicare for All.” The proposed legislation, which Ms. Harris co-sponsored and adopted (in a modified version) as part of her campaign, would have established a single-payer national health insurance system in the U.S. But the plan proved controversial as constituents worried about the impacts to existing insurance options and long-term costs.

Today, facing a tight race, Ms. Harris seems reluctant to support policies that might turn off key swing voters. Instead, her campaign has looked to build on the IRA, including extending insulin caps and out-of-pocket spending limits to all Americans, not just seniors.

She has also hinted at “taking on Big Pharma” via one of the landmark provisions of the legislation: drug price negotiation. Under the law, Medicare can now directly negotiate the price of drugs widely used by plan participants, a first in the program’s history. Prices for the first 10 medicines were announced this month; another 15 drugs will be up for negotiation next year and the year after, followed by an additional 20 therapies each subsequent year. The vice president (along with the Biden administration) has talked about accelerating the pace of negotiations, as well as growing the list of eligible medicines.

Policy is always nuanced

It remains to be seen what that could mean for the sector. This year, the pharmaceutical industry came away from negotiations with what is likely to be a manageable financial hit: most of the 10 drugs selected for negotiation were about to face generic competition or were already heavily rebated in order to be considered for plan formularies, resulting in only incremental discounting.

Going forward, the impact will depend on how future administrations choose to flex Medicare’s newfound muscle. But it’s important to remember that healthcare policy is always nuanced. Under the IRA, small molecule drugs are exempt from price negotiations for seven years from commercial launch and biologics 11 years (with negotiated prices not taking effect for another two years later).

Out-of-pocket spending caps are also expected to help more people afford their prescribed medications, which could drive demand and therefore sales volumes. In addition, improved access could reduce political pressure on the pharma industry, as fewer patients struggle to afford their medicines — an effect that would only likely multiply should Ms. Harris’s plan to expand out-of-pocket caps to all Americans get passed.

But as far as near-term impacts, we don’t expect to see heightened volatility in the healthcare sector as a result of the election, certainly when compared to previous election years. If anything, in the absence of radical policy proposals — and with growing uncertainty about the economy — investors might gravitate to the sector for its traditionally defensive qualities.

That trend may already be taking hold. Since July 1, as worries about a potential slowdown in the U.S. economy began to rise, the S&P 500^® Healthcare Sector¹ has delivered a total return of 7.3%. The S&P 500 Index, meanwhile, has gained only 3.1% and the Nasdaq Composite Index has been essentially flat (0.1%).²

IMPORTANT INFORMATION

Health care industries are subject to government regulation and reimbursement rates, as well as government approval of products and services, which could have a significant effect on price and availability, and can be significantly affected by rapid obsolescence and patent expirations.