How could the election outcome change healthcare policy?

  • Bernstein expects Democrats to win control of the House, but sees the Senate outcome as uncertain. The firm believes taking the Senate would be harder for Democrats and could require a more pronounced electoral wave.
  • A Democratic victory could prompt a delay or slowdown in the implementation of some provisions of the One Big Beautiful Bill, including Medicaid work requirements, eligibility checks, and provisions related to healthcare provider taxes and state-directed payments. Whether the two parties can reach a compromise will also depend on the composition of congressional caucuses.
  • If Democrats control both chambers, Bernstein believes the chances of restoring enhanced health insurance marketplace subsidies would increase. Possible compromises include expanding health savings accounts (HSAs) or adjusting insurance product design.

Why are Medicaid insurers most sensitive to delays?

  • Bernstein believes the market currently prices in a roughly 5%–6% decline in Medicaid enrollment in 2027, followed by a further 2%–5% decline in 2028. Lower enrollment would hurt managed care organizations’ (MCOs) revenue and affect their enrollee risk mix and medical cost trends.
  • If provisions such as work requirements are delayed, enrollment could fall less than currently expected, and insurers’ medical loss ratios could also improve in 2027 or 2028, accelerating the recovery in Medicaid margins.
  • The firm identifies Molina Healthcare, Elevance Health and Centene as the main beneficiaries under this policy scenario, and has become more positive on Medicaid insurers as the likelihood of a Democratic victory has risen.

Hospitals would also benefit; why is valuation upside smaller?

  • Fewer enrollment losses would ease the pressure on hospital patient volumes relative to baseline expectations. Hospitals would also benefit if cuts to healthcare provider taxes and the resulting reductions in state-directed payments were delayed.
  • But Bernstein believes the lighter pressure on patient volumes is already reflected in hospitals’ current valuation multiples. The market’s baseline expectation is also for state-directed payments to remain stable rather than continue growing, limiting the additional upside from this policy change.

What policy changes could affect other health insurance businesses?

  • Bernstein expects no legislative reforms with a significant impact on Medicare Advantage (MA) in 2027–2028, and does not believe a Democratic victory in the midterm elections would pose significant policy risks to MA insurers.
  • However, adjustments to MA payments could still be used to fund other policies, for example by changing risk assessment mechanisms or restricting in-home health assessments. If an agreement is reached on health insurance marketplace subsidies, it could also be accompanied by more low-premium, high-deductible products and expanded HSA use.