Differences in Medicare priorities
To get a sense of what’s at stake for investors at the intersection of business and politics in November, it’s easy to look at specific subsectors. Take Medicare Advantage, for example. The program covers more than 50 percent of the Medicare-eligible population, about 33 million people.3 Medicare Advantage is a type of Medicare health insurance plan offered by private companies that contract with Medicare.
Advantage is publicly funded with about $460 billion in Medicare spending but is privately run by for-profit managed care companies. Eddie Yun, portfolio manager at Fidelity Select Healthcare Portfolio (), notes that the first Trump administration had “friendly policies toward Medicare Advantage companies,” which led to “accelerated penetration” of Medicare-eligible people.
Each year, the Centers for Medicare and Medicaid Services (CMS) resets base rates for Advantage, and private plans adjust their rates accordingly. Under the Biden administration, base rates have not kept pace with rising utilization trends, creating headwinds for private insurers that manage Medicare Advantage plans. The administration also reduced flexibility in the risk adjustment model used to estimate annual patient care costs.
Advantage plans typically include Medicare D, a drug benefit plan enacted in 2006. The Inflation Control Act of 2022 gave the government the power to negotiate drug prices directly with pharmaceutical companies, which will affect the prices of the 10 most expensive drugs starting in 2026 and could expand under a Harris administration. “This is a huge issue for pharmaceutical companies because it takes away pricing power from the industry,” Yoon said.
The Biden administration has also taken further steps with the Inflation Control Act to close the so-called Donut Hole coverage gap in Medicare D, which can reduce profitability for both drug companies and health insurers. In contrast, a second Trump administration may focus on allowing rates and prices to be determined by the private market rather than government policy.
In summary, a second Trump administration could be favorable for managed care companies, as Medicare Advantage companies may have greater flexibility on rates and risk coding, and the new administration may even suspend or reverse some of the previous administration’s policies, Yoon says. Yoon adds that market activity shows many investors have a similar view on the outlook for these companies, and the outcome of the November election will show how that outlook changes. One company that has proven this theory is UnitedHealth Group (), which leads the Advantage market with over 25% share.
