With the impending shift in leadership and the control of Congress by the Republican party, the healthcare industry is on the verge of significant policy changes. These alterations will touch various aspects such as the Affordable Care Act, M&A activities at the Federal Trade Commission, tariffs on medical supplies, and the priorities of the new head of the Department of Health and Human Services. Such changes have the potential to reshape the landscape of healthcare companies and their financial stability.

Unraveling the Effects of the New Administration on Healthcare

Affordable Care Act: A Tale of Uncertainty

President-elect Donald Trump shows little inclination to repeal the ACA. However, House Speaker Mike Johnson has plans for "massive reform" involving Medicare and Medicaid. There's a risk that the 2021 Biden-era premium subsidies may expire in 2025, potentially leaving 4 million people without insurance. This would negatively impact healthcare service providers, especially hospitals, with a higher uninsured population leading to fewer active healthcare seekers and increased bad debt expenses. Without congressional action to extend these subsidies, premium costs could rise by an average of 79%, as estimated by the Kaiser Family Foundation. The Congressional Budget Office predicts that the uninsured rate in the US will increase from 7.2% in 2023 to 8.9% in 2034 due to the subsidy expiration. Medicaid is also under pressure as Trump aims to reduce its financing and may introduce work requirements. This could be detrimental to the healthcare services industry.Medicare Advantage has grown significantly over the past decade, with over half of eligible beneficiaries now enrolled. But the administrative costs associated with these plans pose a challenge for providers. Aggressive expansion of the MA program could be credit-negative.

FTC Lessens Scrutiny on Healthcare M&A Deals

S&P Global analysts expect FTC scrutiny on M&A to ease under the second Trump Administration compared to the Biden Administration's aggressive stance under FTC head Lina Khan. While concerns about pharmaceutical pricing and healthcare costs remain, scrutiny on the healthcare industry is likely to stay high. Decreased FTC scrutiny may boost M&A activities, benefiting pharmaceuticals and healthcare services. Pharma companies are using M&A to diversify portfolios and spur growth in the face of pricing pressures from insurers and stiffer competition. The FTC lawsuit against major pharmacy benefit managers for inflating insulin costs is likely to continue. The FTC has also taken steps to limit non-compete agreements, which could be a wildcard for healthcare service providers struggling with rising labor costs.

Tariffs on Medical Supplies: A Costly Burden

The US healthcare industry is increasingly reliant on imports, especially from China and India. Increased tariffs on medical supplies could raise costs for healthcare service providers already facing inflation and elevated labor expenses. However, the Trump Administration is unlikely to impose hefty tariffs on pharmaceutical imports to lower drug costs. For medical supplies, a tariff increase would be a definite negative. The Biden Administration has been cautious about tariffs to avoid overburdening the healthcare system. It takes time to transition manufacturing to alternative sources.

Broader Regulatory Changes: Implications for the Industry

Potential healthcare agency picks could have a slightly negative impact on the industry. Appointments like Robert F. Kennedy Jr. to HHS could lead to major regulatory changes at agencies like the FDA and the CDC. As the head of HHS, the federal government's endorsement of vaccines could reduce sales of vaccines for shingles, pneumonia, and RSV, affecting companies like GSK PLC, Merck, Pfizer, Sanofi, and AstraZeneca PLC. Kennedy's intention to reform the National Institutes of Health could drastically change the direction of medical research in the US, posing longer-term risks to pharmaceutical companies' new drug pipelines.