Republicans appear likely to hang on to control of the Senate as more races were called on Wednesday, and a divided government would mitigate the risk of the most extreme healthcare policy reforms industry feared.
Democrats' healthcare wish list items such as a public health insurance option and allowing Medicare to negotiate drug prices will likely be off the table if either party holds a narrow Senate majority. That improves the predictability of financial prospects for health insurers and drugmakers. However, divided government could also make it more difficult for Congress to nimbly respond to courts' decisions on the Affordable Care Act.
Control of the Senate has not yet been officially called, though Democrats' path to a majority is narrow.
"The real swing factor here was the Senate for everybody in healthcare," said Stephen Tanal, a managing director with SVB Leerink.
A narrow Senate majority in either direction means one thing: status quo. For health insurers, that's the best possible outcome.
"If you've got a really narrow Senate majority one way or the other, you can pretty much bet you're not going to get huge, wholesale policy change," Tanal said. "That's what it comes down to."
Though Washington had buzzed in recent weeks about the possibilities of a public insurance option and other coverage expansions under an authoritative Democratic trifecta government, those possibilities have evaporated.
"Even if Democrats were to control the Senate, I think there are not enough individual Democratic senators who would feel they had a mandate to pursue aggressive coverage expansion," said Philo Hall, senior counsel at Epstein Becker Green.
Most health insurer stocks soared Wednesday as election results settled into a narrow Republican majority in the Senate, with Anthem up almost 12% at Wednesday's close from Tuesday's close. Cigna's share price jumped almost 15% in that time, while UnitedHealth Group grew by more than 10%. Shares of Centene, meanwhile, fell by about 1%.
Insurers have for years operated under the vague threat of Medicare for All or a public option, which analysts say lowered their stock value even before the 2020 Democratic presidential primaries, in which Sen. Bernie Sanders touted his Medicare for All plan. The most radical iterations of those plans sought to wipe out commercial insurers altogether.
"That's what the stock market had been concerned about and what they've been pricing in for the past at least a year, maybe more," said Julie Utterback, senior equity analyst on the healthcare team with Morningstar.
Control of the Senate was far and away the most important outcome for much of the healthcare industry as the House wasn't expected to flip and the White House doesn't make legislation, Tanal said.
For companies like Centene and Molina, a narrow Democratic majority would be the best outcome, as they're less likely to cut access to Medicaid or subsidies for private plans, which those companies rely more on. Which party holds power matters less for insurers like Anthem, UnitedHealthcare, Cigna and Humana, Tanal said.
The wild card for insurers and healthcare providers will be the Affordable Care Act lawsuit before the Supreme Court. If the justices decide to strike down all or part of the ACA, lawmakers would be forced to grapple with policy in a potentially polarized environment.
"Things could get messy because there's no guarantee they have the votes to pass what we have now," said Chris Sloan, associate principal at Avalere Health.
Democrats' plans to aggressively go after drugmakers have also been curbed after a lackluster performance in Senate races.
House Speaker Nancy Pelosi (D-Calif.) made developing an ambitious Medicare drug-price negotiation bill a cornerstone of Democrats' healthcare policy agenda this Congress, and pitched it as a way to pay to legislation to expand healthcare coverage by shoring up the Affordable Care Act. However, it's unlikely to go anywhere in the Senate if Republicans hold control.
The stock market reacted positively to drugmakers' decreased risk on Wednesday. Gains across the sector included AbbVie up nearly 7% at Wednesday's market close compared with Tuesday's, Bristol Myers Squibb up almost 7%, Merck up 5% and Amgen up 5%.
More marginal policies that could lower seniors' out-of-pocket drug costs for pharmacy drugs and reform payment formulas for outpatient drugs could still advance. Drugmakers have said they support capping seniors' out-of-pocket drug costs, though details would be important to determine winners and losers.
A big bipartisan push on drug pricing sputtered out this session, but the likely top Republicans on Senate committees with jurisdiction on healthcare have endorsed a more modest drug-pricing package assembled by the House GOP. Either a Biden or Trump administration could still pursue administrative measures to lower drug prices.
"While these changes may mark a negative shift from the status quo, they are likely positive relative to investor fears of what could happen under a Democratic sweep," said John Leppard, a healthcare analyst at Washington Analysis.
Hospital leaders would have preferred a Democratic takeover of the Senate, as illustrated by the sluggish stocks of investor-owned chains on Wednesday. Roughly 70% of healthcare providers' campaign contributions also went to Democrats.
With a Democrat-controlled Senate, lawmakers would have had the power to reinstate the Affordable Care Act penalty and change the trajectory of the legal challenge of the law that's currently before the Supreme Court.
As it stands, the fate of the ACA still hangs in the balance, and hospitals would face higher rates of uninsured patients and uncompensated care if the law is overturned, Utterback said.
"We'd be going back to the pre-2014 era in terms of profitability for hospitals," she said. "It's not unmanageable, but it's definitely worse than where they are today."
HCA Healthcare's share price was down about 3% at Wednesday's market close from the prior day's close. Tenet Healthcare Corp. was down about 6% in that time. Universal Health Services was down almost 5%, and Community Health Systems by almost 12%.
Hospitals had salivated at the prospect of one of their fiercest advocates in the Senate, Sen. Chuck Schumer (D-N.Y.), becoming Senate Majority Leader, and spent big money in New York to flip the chamber.
However, it's unlikely the Supreme Court will strike down the ACA in its entirety, and divided government also means policy like a public insurance option, which some national hospital groups opposed, becomes less likely.
"Historically, divided government has been good for our sector," said Federation of American Hospitals President and CEO Chip Kahn.