Medicare for All: The Democratic debate on healthcare

What is Medicare for All? How likely is it? We outline some of the implications for the real economy and financial markets.

28 Jun 2019

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ElectionWatch 2020

A healthy debate

There are 25 candidates vying for the Democratic nomination to challenge President Trump’s re-election bid, 10 of whom participated in the first Democratic debates in Miami Beach on 26 June 2019, and 10 of whom followed on 27 June 2019. The Democratic National Committee (DNC) divided the candidates randomly between the two evenings, without regard to their national prominence.

While there was no shortage of issues that the different candidates focused their attention on during these debates, it’s clear that healthcare will be one of the critical issues for voters in 2020, much as it was in the 2018 midterm elections. The Democratic candidates are united in their support for universal healthcare but have offered a number of different policy prescriptions to get there.

One proposal in particular—Medicare for All (MFA)—has captured extraordinary media coverage. The policy proposal represents something of a dividing line within the Democratic Party between centrists such as Biden and self-avowed socialists such as Sanders.

Keep in mind that the US healthcare system is exceptionally complex, and is funded by federal and state governments, individuals, and employers. Each group has a vested interest in the provision of healthcare—and in the outcome of legislation that may affect their livelihoods and business prospects.

Below, we outline some of the implications of MFA for both the real economy and financial markets.

Healthcare remains top-of-mind for voters

2018 exit poll response: most important issue facing the country

Source: CNN, UBS


What is Medicare for All?

A national health insurance program is not a new idea, but the issue has come to the forefront of American political debates recently for a several reasons:

  • A demographic shift: the baby boomers have reached retirement age, increasing the demand for healthcare.
  • Costs have risen dramatically over the past half century.
  • The Census Bureau reported that 8.8% of the population (or 28.5 million people) did not have health insurance at any point during 2017.

MFA attempts to solve the problem of high uninsured rates and the risk of financial ruin from healthcare costs, and aims to bring US health expenditures more in line with other countries. It would transition the US to a federally mandated single-payer healthcare system, entailing a single government-run plan providing insurance coverage to all Americans.

Under MFA, higher tax revenue would have government spending directly replace much of consumers’ healthcare costs (premiums, deductibles, co-pays for doctor visits, out-of-pocket prescription drug costs, etc.). With the entire population under one plan, the US government would have a leading role in setting care prices, rationing resources, and distributing benefits. Based on some estimates, this could cost the US government USD 32-33tr over a 10-yr period, but proponents believe could lower the US’s overall outlay on healthcare costs by about USD 2tr, over the same time period.

The US spends nearly twice as much on healthcare as its peers

Annual health expenditures per capita, in USD

Source: OCED, National Health Expenditure (NHE) data, UBS


How likely is Medicare for All?

At the moment, MFA lacks the support needed to pass legislation. There is a MFA caucus in the House of Representatives, but it only has 78 members. Support for the initiative is a bit wider than that caucus, with a March 2019 bill garnering about 112 co-sponsors, but this was actually down from 124 co-sponsors for a similar bill floated during the previous Congress and remains below the 218 votes required to secure a majority. Support in the Senate also falls well short of the 60 votes needed to overcome a Republican filibuster.

We expect MFA to be a very popular proposal among select Democratic primary contenders. This means that the single-payer debate will remain in the news, and may weigh on the valuations of healthcare stocks— particularly Managed Care Organizations (MCOs)—should candidates supporting MFA gain in the polls.

Even so, with many practical and political hurdles to a single-payer system, a more modest expansion of coverage under the existing system has a better chance of implementation, though chances of legislation in this regard are also low.

What does the healthcare debate mean for investors?

We recommend that investors not overreact to potential policy-induced volatility in healthcare stocks, and instead stay focused on the healthcare sector’s fundamentals.

A healthy debate

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