With the recent debates, two candidates stand out as front runners: Bernie Sanders and Hillary Clinton. Their plans appear to have striking similarities, but a few subtle differences as well. Will these differences be clinchers for investors in the healthcare market? Also, where do they fall on the hot-button issue of marijuana?

A full transcript follows the video.


Kristine Harjes: Democrats face off on healthcare. This is Industry Focus.

Welcome to Industry Focus, healthcare edition. This is your host Kristine Harjes, I am back from vacation. I hope you guys enjoyed last week's episode with my fellow healthcare analyst Michael Douglass stepping in and Todd Campbell holding down the fort as usual.

Todd's back on the show again today via Skype. Hi, Todd!

Todd Campbell: Hi, how are you today? Glad to have you back.

Harjes: Thanks. I'm doing pretty well. How are you?

Campbell: I'm doing great.

Harjes: Today's episode we'll be dipping our toes into some political waters. I know many of you probably watched the Democratic presidential debate last night. On the heels of that, we wanted to talk about two major candidates' opinions on healthcare and what their plans could mean for investors.

Let me say up front: Todd and I are only human. We have our personal human opinions, but for the purposes of this show, we would like to keep it very neutral, non-partisan, and give an objective look at some of these proposed policies and maybe some of their potential effects, too. If any political leanings do come through, they're mine and/or Todd's and in no way reflective of The Motley Fool, which is not a political organization.

So, with that out of the way... Todd, who should we start with?

Campbell: Let's look at two candidates. The two leading candidates from the Democratic side of the fence. Let's look at Hillary Clinton and Bernie Sanders. Let's talk a little bit about how the two of them would change healthcare, what changes they would make to healthcare, and like you said, we are an investing program; ultimately, we want to try and show how those changes could affect the stocks within the healthcare sector. Obviously, in the past month or two healthcare stocks have been falling pretty dramatically as some more insight has come and changes that could be made to healthcare.

Let's dive right in. We'll start off with what Hillary is thinking she would like to do if she were elected.

Harjes: Sounds good.

Campbell: Great. I think the biggest difference between Hillary and Bernie -- both of them believe that healthcare is a basic right and I think it's important to understand that from an investing standpoint because if they're both coming into it with that leaning, then it likely means more people would be insured under them in the future than there are today.

Of course, that would affect supply and demand and cost, etc., and ultimately the profitability of these companies. In the case of Hillary, she appears to want to take the current Obamacare system and massage the edges, if you will. Her goal isn't to toss aside Obamacare and replace it with "Hillarycare."

Her goal seems to be to see that Obamacare is working and wants to see if we could make it better so more people can get coverage and let's see if we can focus the bulk of our attention on trying to rein in some of the costs that are associated in driving healthcare spending higher, rather than getting to 0% uninsured.

Harjes: She has quite a few targets as to how she would propose doing this.

Campbell: Yeah. Without a doubt, looking through the candidates and what they're proposing, she seems to be focusing most of her attention on the drug-spending side of things, in my opinion. She has a couple policies that she's said would deal with insurance. For example: She wants to cap the amount of money that you would spend on drugs out of pocket to $250 per month, or $3,000 per year.

That would affect the insurance and the deductible side of things. The reason that would be important for insurers is because one of the reasons they're able to maintain their profit margins at the levels that they want is because they've been increasing deductibles over the last few years to shift more of those costs to consumers and patients rather than having to be on the hook for all of that increase.

That would affect insures. She's also focusing a tremendous amount of attention on reining in how much we pay for individual drugs. There's a few ways that she wants to accomplish that. She wants to, first and foremost, give Medicare the opportunity to negotiate directly with drugmakers on pricing.

That's something that doesn't exist today. The Medicare Modernization Act of 2003 prohibits Medicare from negotiating with drugmakers, so she wants to remove that and take the reins off Medicare and allow them to be out there saying to various drugmakers that they want a special deal because they have tens of millions of patients in buying power and should be paying a lower price. That's probably the most significant way that she hopes to try to reduce drug prices.

She's also gone on record as saying that she wants to roll out importation out of Canada, make some changes to the tax code and those types of things.

Harjes: I find it baffling that Medicare doesn't have that power right now. I think that's something that not a lot of people are aware of. As it stands right now, private insurers can negotiate, but their voice isn't as loud as Medicare could be. Medicare covers 49 million seniors. That's larger than any individual private insurer.

The other side of that coin that people have to understand is that Medicare doesn't have the same potential voice as some of these private insurers because people would be outraged if Medicare walked away from a negotiation if they took that hard stance. You see that in some European countries where a government healthcare plan will say, "No, we're not going to cover this drug because you're asking too much."

People in the United States aren't used to that. I don't think they would stand for it. It remains to be seen -- this is just speculation -- but I'm not sure if Medicare would actually have more power in a negotiation as Hillary would propose. It remains to be seen.

Campbell: I agree with that. If you look at the United Kingdom, of the two different countries of being able to say that they've got a metric QALY that they use to determine the benefit of a drug and then calculate out the cost of that drug for that benefit. If you don't make the number, they don't reimburse for it.

I agree with you. In our country, we don't want rationalized healthcare. There would be a lot of pushback if Medicare said they won't pay for a cancer drug because they don't think it's effective enough. You can't say it would be effective in any one given patient, on a specific patient.

Their negotiating power will be somewhat limited, but it's the same situation with private insurers to a degree. No one wants to be the evil dictator who's sitting on top of the mountain saying they can't have that drug. It's not good PR.

Harjes: Exactly. Another part of her plan that I want to touch on is, Hillary would like to require a certain percentage of revenue of drug makers going directly back into research and development spending. This is a really interesting proposition here.

My suspicion is whatever number she would end up coming out with would probably be less than what most companies already spend and it would be more so to get rid of a business model of buying up old, outdated drugs and jacking up the price without actually having to develop them yourself. It could get really interesting depending on where that number is placed.

Campbell: I think you're right. It's probably going to be below what most companies are already spending, so most investors shouldn't worry too much about that. Where you would run into a problem is, like you said, those companies that have made a habit of going out and buying preexisting medications only to jack up the price and then not putting any of that money back into developing their own drugs, or R&D.

There is one business model that would take a big hit in that regard. Those companies who built their businesses around doing that would suffer more than a research-heavy company like Gilead Sciences or something. I think another thing that's interesting about what Hillary is saying is she would increase the funding to the FDA to expedite approval times on generic drugs. That's another way that she would hope to try and reign in spending.

If you can get generic drugs onto the market more quickly rather than having backlogs build up at the FDA, applications that have been files but just aren't being processed, theoretically you could save a lot of money that way as well.

Harjes: Exactly. There are so many other parts to what Hillary has laid out. Those are the basics. Let's move on to Bernie Sanders and take a look at what he has to say about how he would go about changing the United States healthcare system.

Campbell: In my opinion, the sharpest contrast between what Hillary would do with healthcare and what Bernie would do with healthcare is that while they both believe that healthcare is a right, Bernie seems to favor a "Medicare for all" solution. It's not clear whether or not he would disband Obamacare, or how he would make this happen.

He has said that he recognizes that it couldn't happen overnight, but it would seem to me that he wants to take the already proven system of Medicare that has 49 million people being served already and basically opening that up to everyone so Medicare will handle all of the insurance, and as a result, create a lot of "efficiency" by eliminating all of the marketing. United Healthcare's plans are better them Anthem's plan is better than Humana's plan is better than Cigna's plan and all of that. You basically have one plan for everyone, and it's Medicare.

Obviously, that would significantly increase the number of people who are being covered by insurance, but it would certainly be very disruptive and create a lot of uncertainty within the private insurance market. That, in my opinion, is the biggest difference between the two candidates. Bernie has also agreed to allow the importation of drugs out of Canada. That's similar. He's also gone on record and said to allow for Medicare to negotiate pricing.

That's similar as well. He has one other difference from Hillary as far as he's said he wants to focus on price increases at generic drugmakers and make sure if generic drugmakers are increasing their prices they're providing more rebates back to government payers like Medicaid. That's something that Hillary hasn't taken up that Bernie has as well.

Harjes: What's really interesting about this whole "Medicare for all" concept is that it wouldn't quite be that governments own and operate your hospitals and your providers, which is what you have in the United Kingdom. Rather, Medicare would be expanded so everybody was on a national healthcare plan, but still with private delivery and just public financing.

Meanwhile, you'd still have your private insurance companies, kind of like you still have them for supplemental Medicare insurance. They would exist exactly for that reason, as supplemental insurance. We're not going to see private insurers go away entirely, but their role could definitely be greatly reduced.

Campbell: Right. We don't know how this would affect provider networks either. Obviously, a lot of doctors accept Medicare; it's a big part of their business. It's not like this is disruptive on that side. However, how much Medicare is paying for doctors' services may differ from how much a private insurance company like United Healthcare is paying for a doctor's services.

We don't know exactly how that would break out as far as hospitals, urgent care centers, and outpatient surgeries; again, Medicare does have some pricing power in regard to those that it doesn't have as far as drug pricing.

Harjes: Right. When we're thinking about winners and losers here, to me it seems like hospitals would definitely stand to benefit from more people being covered. Would you agree with that?

Campbell: In both cases, hospitals are winners because you're not -- so far neither of these candidates has called them out on their pricing, or the cost of care. They haven't addressed those things. They've focused more on insurance and drug makers.

If you get more people receiving insurance as we've seen occur over the last five years after the enactment of Obamacare, more people with more coverage means more care being provided, which means more revenue that is flowing to hospitals and at the same time, less money that has to be written off in bad debt expenses from those people who are uninsured showing up in emergency rooms.

Harjes: Right. Theoretically, that increased hospital spending could also increase the use of medical devices. We could see some medical device makers potentially picking up additional revenue.

Campbell: Yeah. I would also argue that pharmacies would benefit from increased utilization, too. Again, where both of these candidates are focusing on reining in drug prices, they're not really targeting the margin of the retailer that's sitting in between. That would mean a company like CVS Health that operates both a pharmacy and a pharmacy benefit manager that runs pharmacy programs for health insurers and self-insured employers, they could benefit as well from both of these candidates' plans.

Harjes: Exactly. The devil is in the details. How much will drug volume actually be boosted? Could generics get to market faster and actually hurt some of the branded side of things? There are so many questions that are still left and these plans are being proposed at a national level so they're a bit vague. It's still unclear on many fronts who the winners and losers will be, but it is interesting to speculate about.

I want to end the show by touching on an issue that always seems to be a popular one among listeners. That's medical and recreational marijuana usage. Both candidates have also voiced their opinions on this healthcare subject, and before we talk about what they have to say about it, I just want to get more legal disclaimers out of the way and remind you that, as always, people on our could have interests in the stocks that they talk about, and The Motley Fool may have formal recommendations for or against those stocks. So, don't buy or sell anything based solely on what you hear Todd or I say.

If you are interested in doing some more research on some of the names you've heard today, we've got a great deal running right now for our listeners of Industry Focus, on The Motley Fool's flagship stock-picking newsletter called Stock Advisor. To check it out, visit Focus.Fool.com. Again, that's Focus.Fool.com. Know that Stock Advisor comes highly recommended from both Todd and myself.

As promised, the last issue that we wanted to discuss today was marijuana. Todd, can you share with us where some of these candidates stand on that issue?

Campbell: This is a really interesting recent debate between the democratic candidates. The reason I say that it was interesting is because, obviously, in the last few years there's been a groundswell of support for the legalization of both medical and recreational marijuana. You've got roughly two dozen states now that you can purchase medical marijuana and use medical marijuana, and you've got four states now that have passed some form of legislation on being able to legally have recreational marijuana.

More and more states over the years are taking up this issue and voting on it. In 2016, a presidential year, there's going to be a lot more ballots that will be out there. When the question came up in the most recent democratic debate, it was asked specifically of Bernie Sanders and Hillary Clinton, and the question was "Would you sign off on legalized marijuana if you were in Nevada? Would you vote for it?" Because that's going to be one of the estates that's going to be taking this issue up next year.

Bernie Sanders basically said "Yes." He would support it. That's the first time that I know of that one of these presidential candidates on either side of the aisle has gone out and said that they would vote for a recreational marijuana bill if it was put forth.

Hillary took the other side of that argument and said "This is a state by state issue. I think that we need to watch and evaluate how it's playing out in states that have passed recreational marijuana before we look at expanding that into more and more states." But she was clear to make sure people were aware that she's a big supporter of medical marijuana.

I think the information we have right now exiting the debate would be that Bernie Sanders is more in favor of embracing recreational use of marijuana legislation in order to decriminalize it and reduce the number of people who are being sent to jail because of it. Where Hillary is taking more of a "wait and see" approach on the recreational side, but let's go ahead and embrace medical.

Harjes: It's so interesting to me that this has become a central issue of the debate. I remember when Obama was pleading with people to stop getting their heads wrapped around marijuana. This wasn't the most important issue at the moment. It's clearly going to be a big issue for the 2016 elections.

Campbell: People are going to have to watch this closely. It's a fascinating subject. There's very limited investing takeaway currently. Most of the marijuana players are micro-cap stocks that trade over the counter. Two things that we here at the Fool avoid trafficking in. There are a couple drug makers out there who are researching using marijuana cannabinoids to come up with cures, but that work is still in the clinical stages for the most part.

Harjes: Yeah. Between that and all the uncertainty surrounding the industry in general, I know personally it's not something that I'm going to put my investing dollars behind. Clearly, this is a big issue and all the other issues that we've talked about on the show today between drug prices and insurance reform will definitely continue to be hot-button issues and we'll be sure to keep you updated on any key developments.

Todd, it's been a pleasure as always. Folks, thanks for listening.