What Trump’s Presidency Means for Health Care Sector

By Emel Akan, Epoch Times
November 17, 2016 5:33 am Last Updated: November 17, 2016 5:40 am

Health care was one of the issues that dominated the election debates. Pharmaceutical and biotechnology companies, which had been worried about Hillary Clinton’s crackdown on drug prices, had relief at Donald Trump’s victory.

There will be big changes in health care under Trump’s presidency, including the repeal and replacement of Obamacare. However, there is still uncertainty about Trump’s health care agenda and how it will impact the various players in the sectors.

“We do expect [health care] to be a significant priority based on the frequency and the number of proposals starting to emerge from the transition team,” said Peter Claude, partner at PwC Consulting.

According to Claude, President-elect Trump’s health care policies will take into account free-market principles as well as consumerist and populist approaches, especially when dealing with drug costs.

Tackling high drug prices was a priority for Clinton during her election campaign. Although it was not a priority for Trump, he still has to deal with the issue due to widespread concerns over rising costs.

Drug prices will be on the table because of the populist view, according to Claude.

“Free-market point of view allows the manufacturers to price their products and compete on that pricing. But some companies have raised the prices dramatically, which caused public anger. So I don’t think the drugmakers are off the hook,” he said.

Trump also said he would allow drugs to be reimported. So the prescription drugs that were originally manufactured in the United States and exported to other countries will be imported back.

Trump also wants to require price transparency from all health care providers, including doctors, clinics, and hospitals. This will help consumers shop for the best prices to get their medical services.

All these policies will have a negative impact on drugmakers and hospitals, but they will benefit insurers, according to PwC.

Drugmakers will have some positive news as well. Trump has indicated he would support anything that reduces red tape in the drug approval process.

“The drug manufacturers will have an opportunity to seek advantages like the acceleration of the drug development and approval process with the U.S. Food and Drug Administration (FDA). So there is a room for negotiation [for drugmakers],” Claude said.

Can Trump Kill Obamacare?

A person walks into the UniVista Insurance company office where people are signing up for health care plans under the Affordable Care Act, also known as Obamacare, in Miami on on Dec. 15, 2015. (Joe Raedle/Getty Images)
The UniVista Insurance company office where people are signing up for health care plans under the Affordable Care Act, also known as Obamacare, in Miami on Dec. 15, 2015. Repeal of Obamacare will likely have a positive effect on pharmaceutical and life science companies and a negative effect on hospitals and insurers, according to PwC Consulting. (Joe Raedle/Getty Images)

Trump repeatedly called for the repeal and replacement of the Affordable Care Act (also known as Obamacare), which was signed into law in 2010 by President Barack Obama. ACA was Obama’s signature achievement, but now it is under scrutiny due to rapidly rising premiums.

The Trump administration plans to replace ACA with a program that includes Health Savings Accounts (HSAs). HSAs allow individuals to save tax-free money to be used for health expenses. 

Trump also wants to return the regulatory control of health insurance from the federal government to the states.

Repeal of ACA will likely have a positive effect on pharmaceutical and life science companies and a negative effect on hospitals, according to PwC.

Hence, the election results were broadly positive for pharma and biotech stocks. Health care facilities (especially hospitals) and Medicaid managed care stocks had one of their worst days on Nov. 9, according to a Barclays Capital report.

However, repealing and replacing the law will be a very difficult task for Republicans.

“Repealing the ACA without replacement options for over 20 million previously uninsured individuals would be politically challenging and impractical,” stated Joshua Raskin, health care analyst at Barclays Capital.

The Trump administration has to address many concerns related to the transition period from the existing program to the new program, according to Claude.

“It is not a light switch; you can’t just turn it on and off,” he said.

Trump told The Wall Street Journal that he would consider keeping two provisions of the law including the rule that allows parents to keep their children up to age 26 on their policies and the ban on insurers refusing coverage to people with pre-existing conditions.

Tax Reform and Cash Repatriation

The United States has one of the highest corporate tax rates in the world. It also taxes firms on foreign profits. 

Trump intends to announce a tax reform within the first 100 days of his presidency. He proposed reducing the corporate tax rates from 35 percent to 15 percent.

And through a tax holiday, he will allow American companies to bring overseas cash back to the United States at a tax rate of 10 percent. This has been a significant concern for policymakers in Washington, and according to estimates, $2.4 trillion dollars is held offshore.

“This may enable pharmaceutical companies to repatriate substantial offshore cash and earnings without the current punitive tax rate,” stated Andrew Baum, health care analyst at Citi, in a research report.

“We anticipate this repatriation could facilitate a significant wave of mergers and acquisitions (M&A) initiated by U.S. companies,” he wrote.

The repatriation of funds will also allow U.S. companies to invest in research and development and return to the manufacturing activity, according to Claude.