Super Tuesday Results Provide Rally for Health Stocks

Stocks in several healthcare sectors, including the health insurers and service providers, surged after Super Tuesday results showed significant support behind moderate Democrat Joe Biden. We do not expect any changes to our moats or valuations based on these results, but we now see the Democratic presidential nomination as a two-horse race between Biden and the more liberal Bernie Sanders. While delegate tallies still need to be finalized, we think it would be difficult for another candidate to win the Democratic nomination, and recent moderate momentum appears to be rallying healthcare stocks.

Specifically, the difference between Biden and Sanders would be stark for the healthcare industry. One of the hallmarks of Sanders' candidacy is the pursuit of a Medicare for All requirement that would eliminate the private health insurance industry. We have argued that this scenario is highly unlikely in the next 10 years, but if Medicare for All were enacted, there would be significant consequences for health insurers, dialysis companies, and other service providers in particular. Biden's stance on the healthcare industry appears much more moderate and would likely build on the Obama administration's key legislative achievement, the Affordable Care Act.

If Biden were the Democratic nominee, we would expect him to pursue a public option to further increase access to and affordability of health insurance in the U.S. In this scenario, we would expect the U.S. healthcare system to largely remain the same with the potential for higher insurance rolls and an increase in government-sponsored (but not necessarily government-run) programs, like Medicare Advantage. On one end of the spectrum, health insurers with a large concentration in government programs could benefit from a public option. In general though, the consolidation of moderate Democrat momentum behind Biden has acted as a catalyst for healthcare stocks that had been pressured by Sanders' Medicare for All plan.

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