Ken Fisher on Why Investors Shouldn’t Overrate ‘Medicare for All’ Proposals

Editors’ Note: Fisher Investments favors no party nor any candidate. We assess political developments exclusively for their market impact (or lack thereof), and we don’t believe any candidate or party is inherently superior for stocks or the economy.

With the primaries getting underway, the remaining Democratic presidential hopefuls are making a final push to woo voters in early primary states. Given the still-crowded field, candidates have an incentive to differentiate themselves by touting bold ideas many see as radical. Investors are increasingly taking notice and fretting the possibility this or that proposal becomes law. One such policy: Medicare for All, which would effectively nationalize parts of America’s healthcare system. Many worry this jeopardizes a wide range of Health Care firms. Yet Ken Fisher, Founder and Chairman of Fisher Investments, thinks these concerns are premature. It would be extremely hasty to start considering Medicare for All in your investment decisions now.

Most Medicare for All blueprints aim to largely or entirely replace private health insurance with a “single-payer” system of taxpayer-funded and government-administered coverage. Senator Bernie Sanders is the idea’s principal public face, having written legislation on the subject, a fact he has colorfully reminded would-be voters of several times in the Democratic debates. When he introduced said legislation last April, co-sponsors included four other Democratic candidates. Several other non-senator presidential hopefuls have voiced support for the general idea, too.

Many argue Health Care firms would suffer under the law, as it would significantly disrupt the industry. Seismic changes like these could create winners and losers on a grand scale. Many fear private health insurance would vanish—much as private unemployment insurance did during the New Deal. That doesn’t sound great if you own shares in a health insurance company. Others speculate that healthcare providers—including hospitals—might also suffer. They currently lose money overall on Medicare patients. Seeing the American system adopt these principles broadly could cause losses to mount.

Proponents claim this would be offset by a reduction in America’s big healthcare expenses relative to GDP, even after considering the higher taxes that would likely be required fund it. Maybe so. But Ken Fisher believes such legislation would change the playing field for businesses dramatically, with the losers feeling the pain of loss more than the potential winners appreciating their gain.

Ken Fisher does believe all this speculation has stoked negative sentiment, hurting Health Care stocks. In mid-April 2019, when Medicare for All chatter spiked, the sector dropped -4.9% in three days.[i] The Providers and Services industry fell most (-7.2%), likely because it includes the firms that would potentially be squarely in Medicare for All’s crosshairs—hospitals and insurers.[ii] While this weakness reversed relatively quickly, Ken Fisher thinks it shows Health Care stocks’ sensitivity to Medicare for All hype. This is likely in part why Health Care’s 20.8% return last year was the second-worst of the 11 equity sectors—and behind the S&P 500’s 31.5%.[iii] Prior to a Q4 rally amid cooling hype over Medicare for All, it was the worst-performing sector.[iv]

But that sensitivity overrates the likelihood this becomes law. Though Medicare for All seems popular with left-leaning voters that comprise some Democratic candidates’ base, overall voters’ views seem more nuanced. Some polls show how a Medicare for All plan’s wording can elicit different support levels. For example, a majority of those polled support a proposal stating Medicare for All will eliminate private health insurance, as long as it still allows people to choose their doctors, hospitals and other medical providers.[v] But if people hear their taxes will increase, a majority oppose—even if overall healthcare costs decrease.[vi] Voters’ malleable views thereby influence candidates’ presentation of the healthcare issue as they try to appeal to their base.

Candidates must also walk a fine line between currying partisan voters’ favor and not alienating moderate voters. One poll taken in the key battleground states of Pennsylvania, Minnesota, Michigan and Wisconsin showed 62% of Democratic voters supported a Medicare for All plan that eliminated private insurance.[vii] Yet the same percentage of swing voters in those states said that plan is a bad idea.[viii] Winning over swing voters is key for the general election, and some leading Democratic candidates have started softening their messaging. For example, Senator Elizabeth Warren—who earlier strongly backed Medicare for All—later emphasized that Americans would have a “choice” to opt into her plan. This apparent backtrack follows her poll numbers’ recent deterioration, likely an attempt to moderate and garner more mainstream support.

This evolution shows how much can change on the campaign trail, to say nothing of the realities of governing. Passing highly polarizing bills is extremely difficult if the opposition party holds a House or Senate majority, and Congress’s 2021 makeup is unknowable now. Even if one party controls the presidency and both houses of Congress, success isn’t assured. President Obama had a Senate supermajority for his first two years in office, but just two major bills—the Affordable Care Act (ACA) and the Dodd-Frank financial reforms—crossed his desk. Both were vastly watered down from campaign trail proposals, with the ACA lacking a government-sponsored insurance plan. That is largely why Medicare for All is an issue in 2020 at all. When Republicans held both chambers in 2017 – 2018, intraparty gridlock forestalled substantial changes except for tax reform—and even that was less ambitious than initial proposals.

While fears of a sweeping healthcare industry overhaul will grab eyeballs, nothing is inevitable at this point. With the election still months away, Ken Fisher believes investors shouldn’t extrapolate today’s campaign trail talk to tomorrow’s laws.

Investing in stock markets involves the risk of loss and there is no guarantee that all or any capital invested will be repaid. Past performance is no guarantee of future returns. International currency fluctuations may result in a higher or lower investment return.  This document constitutes the general views of Fisher Investments and should not be regarded as personalized investment or tax advice or as a representation of its performance or that of its clients. No assurances are made that Fisher Investments will continue to hold these views, which may change at any time based on new information, analysis or reconsideration. In addition, no assurances are made regarding the accuracy of any forecast made herein. Not all past forecasts have been, nor future forecasts will be, as accurate as any contained herein.

[i] Source: FactSet, as of 5/16/2019. S&P 500 Health Care Total Return Index, 4/15/2019 – 4/17/2019.
[ii] Ibid. S&P 500 Health Care Providers and Services Total Return Index, 4/15/2019 – 4/17/2019.
[iii] Source: FactSet, as of 1/9/2020. S&P 500 Total Return Index and S&P 500 Health Care Total Return Index, 12/31/2018 – 12/31/2019.
[iv] Source: FactSet, as of 1/10/2020. S&P 500 sector total returns, 12/31/2018 – 9/30/2019.
[v] Source: Lunna Lopes, Liz Hamel, Ashley Kirzinger, Audrey Kearney and Mollyann Brodie, KFF, “KFF Health Tracking Poll – November 2019: Health Care in the 2020 Election, Medicare-for-all, and the State off the ACA,” 11/20/2019. https://www.kff.org/health-reform/poll-finding/kff-health-tracking-poll-november-2019/
[vi] Ibid.
[vii] Source: Drew Altman, Axios, “Democrats Like Medicare for All, but Swing Voters Don’t,” 11/19/2019. https://www.axios.com/medicare-for-all-politics-democratic-primary-2020-election-ecf9b139-cccb-4249-a595-3ac50e1c88d4.html
[viii] Ibid.