US election/healthcare

(Financial Times)

Many incoming US presidents have pledged - and failed - to improve the healthcare system. But it might be different this time. Hillary Clinton's unwieldy reform proposal bombed in 1994, helped on its way down by a hail of crossfire from drug and insurance industry lobbyists. But much has changed since then.

Nearly one in six Americans now lack health insurance, and costs have spiked for those with cover. In this presidential election, healthcare will be nearly as big an issue as the war in Iraq, and support for universal coverage is building.

Time for a dose of political realism. Yes, Medicare is accelerating towards insolvency, which could happen well before 2019. But the healthcare system is not so badly broken as to inspire a complete overhaul. More likely are incremental changes through Congress, in which basic tax-funded healthcare can be augmented by private insurance.

With the stakes high, drugmakers, insurers and care providers will be promoting their interests heavily in Washington this year. Amgen and others who thrive on Medicare reimbursements are already spending vigorously. But judging from the harsh rhetoric of Democrats, drugmakers and insurers may find their lobbying muscle has atrophied.

Whether policy changes are sweeping or slight, hospital operators stand to gain. Broader insurance coverage would reduce rising bad debt expenses that represent 6 per cent of hospital costs. (Though Congress may claw back some of those recoveries).

Insurers, however, could see their 10 to 12 per cent margins under pressure, especially if they are forced to guarantee access to policies and renewals. And for big pharma, politics is hardly moot. The incoming administration may add to pricing pressure by allowing cheaper drugs from abroad, or easier generics access. Such a blow to profits from the next president looks possible. But with drugmakers already struggling against high costs and thinning pipelines, investors have more immediate issues to worry about.