Which Healthcare Policy Scenarios Remain Possible

As of the morning of Nov. 4, control of the major U.S. federal electable bodies still remains uncertain. For now, most news outlets project that the U.S. House of Representatives will remain in the Democratic party's control. However, control of the White House and Senate still remain up in the air, as several states continue to process votes and appear too close to call. We reiterate our undervalued call on the managed care sector and see significant margins of safety built into most of those players' stocks even in our valuation downside policy scenarios, which are possible only in a Democratic sweep scenario.

However, investors should know that we would be unlikely to change our moat ratings or valuations even in a Democratic sweep scenario until legislative plans are more certain. The U.S. still remains in increasing access mode, and current initiatives to expand the insured population create a spectrum of risks and opportunities, with the public option representing the major wildcard. Based on our pricing estimates for the public option, though, we see the potential for major changes on the individual exchanges but only minor changes in the important employer-based market even at the low end of our estimated pricing range. The role of private insurers in the public option could also be a point of compromise in the legislative process since plans from private insurers, like Medicare Advantage, could play a role.

Split control of the U.S. government's federal electable bodies also remains possible, and policy changes that meaningfully change our moat or valuations in the healthcare industry appear unlikely in this scenario. Split control of the U.S. federal electable bodies would likely result in a business as usual regulatory environment for the healthcare industry. However, we think executive orders could create mildly positive effects on the number of insured Americans with a Democrat in the White House and mildly negative effects with Republican control.

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