Why You Shouldn’t Overrate Campaign Trail Proposals: 'Medicare for All' Edition

Editors’ Note: Our political commentary is intentionally non-partisan and analyzes politics solely for its potential stock market impact. We favor no politician or party and believe political bias is a dangerous investing error.

Health Care stocks have seemingly taken it on the chin this year: The S&P 500’s worst-performing sector has gained just 2.1% compared to high-flying Tech’s 22.0%.^[i] A primary culprit: growing fear a Democratic presidential candidate advocating “Medicare for All” wins the election, potentially paving the way for an overhaul of the US healthcare system. In our view, however, it is far too early to gauge the likelihood this or any campaign proposal becomes law. Too much can change between now and Election Day—and history shows a wide gulf between candidates’ ideas and their actions and accomplishments once in office. Hence, we think investors would benefit from staying cool and not letting campaign rhetoric drive their investment decisions.

Most Medicare for All blueprints would largely or entirely replace private health insurance with a “single-payer” system of taxpayer-funded and government-administered coverage. Independent Senator and Democratic presidential candidate Bernie Sanders is the idea’s public face—partly because he has long championed it and partly because he is well known, given he finished second in 2016’s Democratic primaries and currently ranks second (behind erstwhile veep Joe Biden) in most Democratic primary polls. When Sanders introduced Medicare for All legislation in the Senate last month, co-sponsors included four other Democratic candidates—and several other presidential hopefuls have voiced support for the general idea.

Health Care stocks haven’t responded well. In mid-April, when Medicare for All chatter spiked, the sector dove -4.9% in three days.^[ii] The Providers and Services industry fell most, (-7.2%), likely because it includes the firms potentially most in Medicare for All’s crosshairs—hospitals and insurers.^[iii] While this weakness reversed relatively quickly, it shows Health Care stocks’ sensitivity to Medicare for All hype.

Many argue Health Care firms would suffer hugely under the law. While this isn’t the space to debate its merits, proponents and opponents agree on one thing: It would significantly disrupt the industry. Seismic changes in how medical care is provided and paid for could create winners and losers on a grand scale. For example, private health insurance might go the way of the dodo—not great if you are a health insurance company. Healthcare providers—like hospitals—might also suffer: They currently lose money overall on Medicare patients, and if these now comprised the vast majority, losses could mount.^[iv]

While all this sounds like a scary prospect for investors in Health Care stocks, we advise taking a deep breath and considering the (in our view, quite low) likelihood Medicare for All happens. For starters, it isn’t clear Sanders or another candidate backing it will emerge victorious. President Trump currently has 25 challengers—24 Democrats, 1 Republican. More may enter before primary season kicks off next February. Such a crowded field defies prediction, especially since early front-runners often fade in the polls. Consider: At this time four years ago, Jeb! Bush topped GOP primary polls. Plus, history shows incumbents are awfully tough to unseat.

Candidates also frequently tout dramatic proposals they later reverse or can’t push through. Recent history is littered with examples: George H.W. Bush’s famous “read my lips: no new taxes” pledge; Bill Clinton’s healthcare overhaul plans; Bush II’s Social Security privatization push; Obama’s promise to end the Bush tax cuts; Trump’s effort to repeal the Affordable Care Act and enact major financial deregulation. None of these occurred. Campaign trail promises—even if backed up by long-shot bills—are mostly intended to signal ideological leanings and priorities to voters, not as viable legislation. This is especially true in party primaries, when candidates typically need to appeal to their base.

2021’s Congressional makeup—unknowable now—is another big factor. Even if a candidate backing Medicare for All won, presidents can’t unilaterally set policy. They wield power mostly through executive orders, foreign policy (including trade), vetoes, various nominations and appointments and exploiting the bully pulpit. Congress, though, makes the laws. Presidents can horse-trade, cajole and refuse to sign bills they don’t like, but unless they enjoy House and Senate majorities, their preferred policies likely languish. Hence, unless Democrats take back the Senate and retain their House edge, Medicare for All likely has a snowball’s chance. The fate of Sanders’ 2017 Medicare for All Act is telling: Per Congress.gov, it was “read twice and referred to the [Republican-controlled] Committee on Finance” on September 13, 2017. There it stayed. The 2019 iteration has thus far met the same fate.

Even with Congressional majorities, major policies often get watered down significantly. The Affordable Care Act, Dodd-Frank and the Tax Cut and Jobs Act were far less ambitious than their early drafts. Negotiation takes its toll—not just between parties, but within. Intraparty divisions can give a few moderates huge sway—or scuttle bills entirely. Pols’ top priority is re-election—and voting for laws that could alienate important voting blocs risks defeat.

This isn’t to say campaign promises can’t spur short-term market jitters—or that stocks wait until the president’s pen is poised over a bill before reacting. Politics and policy matter, and some sectors may fluctuate in response to candidate proposals. But investors should heed the probability these become law, not mere possibilities. Today, many months before the first primary, we mainly have the latter. Expect more bold proposals from presidential hopefuls over the coming months. Maybe they influence how you vote—but we caution against letting them dictate how you invest.