As we said recently, there can be a lot of daylight between the paid opinionators and people with ballots in their hands. This election makes that fact clear -- painfully -- if you are one of those paid prognosticators. The miscalculations by all the media paid to tell us what the electorate will do leaves in its wake uncertainty. Markets, as we all know, hate uncertainty.
The thing is changes to policy - especially health care policy - are a slow train coming. Shouts of repeal and replace notwithstanding, what happens next is not likely to be sudden or even complete in the minds of many ACA haters. The fact is, wholesale repeal of laws - especially laws as far reaching as the ACA - is difficult. If after this election you are thinking America has just gone raving mad, please note that Colorado rejected a pretty radical government interference in health care and California voters are not interested in a drug pricing scheme. Could be that America is just not interested in any more major health care initiatives.
Some thoughts:
- Repeal and replace of the ACA will still be tough as long as Republicans hold only a slim majority in Senate. The Warren/Sanders wing - which has been vindicated in some respects by Trump's victory in the sense that they felt Clinton was the wrong candidate - will hold fast to their own vision of single payer and turning the drug industry into a utility. Meanwhile, the Freedom Caucus wants the law repealed and could care less what happens next. With the electoral map of 2018 looking tougher than 2016 for Democrats do they all find a third way? Given the pressure from the Sanders/Warren wing, that outcome seems unlikely.
- On the other hand, partial repeal of the ACA can occur through reconciliation - the device by the way used to get it passed - but that has limited effect. Anything in the ACA related to money - the individual mandate, tax provisions like the Cadillac tax and the device tax can be eliminated through reconciliation (we have a complete list which we will get out tomorrow/later this morning). Other provisions like the CMMI which has garnered so much interest since the Part B Drug Demo was announced, will likely stay. The problem with reconciliation is that you still have about 20 million people whose health insurance coverage will get disrupted. Most of what we have heard from responsible Republican leadership is that is no small problem. So, the question becomes whether or not Democrats will accept a compromise that preserves coverage - perhaps even expands it by providing more flexibility to the ACA insurance provisions - while eliminating parts of the law more noxious to Republicans. Either way, a wholesale elimination of health insurance for 20 million people seems unlikely.
- Donald Trump has not really articulated a health care policy other than repeal and replace of the ACA. House Republicans, on the other hand, have a fully vetted plan known as A Better Way. We expect the health care policy in A Better Way to be the default position of a Trump presidency. See Monday's note for a complete rundown on the House Republicans' positions. Paul Ryan, a major architect of A Better Way, does find himself in a slightly awkward position given his regular admonishments of Trump during the campaign. The lack of a policy bench at Trump Tower however, means we expect the president-elect will be practical when it comes to retaining the support of Ryan and House Republicans and embrace many of their positions. Perhaps we are getting a little optimistic with that notion we should acknowledge.
- Trump has little in the way of policy expertise and to date has not really attracted any. This shortcoming is a real concern because competency is actually pretty important when it comes to that 20 percent of the American economy that is health care. We are, then, going to pay attention to how Trump staffs HHS. If Trump appoints qualified leadership to HHS, tools like 1332 waivers in the ACA which until now where viewed as pathways for creating a public option, could become major levers in health care policy on a state by state basis. If he does not, then the base case is probably status quo.
- Pharma did not disappoint us fending off a pricing fixing ballot measure in California. As we have noted for the last six months or so, the politics and policy surrounding drug pricing is so complicated, so interwoven with the health care system at large, easy fixes like the Part B Drug Demo and Prop 61 are quickly revealed for what they are – bad solutions to a very real problem.
- Single payer went down in flames in Colorado suggesting that too is not a solution for which those voters yearned.
Today is a rocky open for health care as media reports (the same guys that called the race with a 6 point spread) predict the pending repeal of the ACA. It won't be that easy and it won't be that fast so it is probably better to rely on the fundamentals the health care team of Tom Tobin and Andrew Freedman have been talking about the last several weeks. Policy will have an impact. Just not on November 9th.
* * * * *
For info on our institutional research email sales@hedgeye.com
