In part one of this two-part series, Motley Fool analyst Kristine Harjes and contributor Todd Campbell discuss proposals from democratic presidential hopefuls Bernie Sanders and Hillary Clinton to improve healthcare. Will Sanders' Medicare-for-all imperil insurers, and could Clinton's plan put drugmakers in the crosshairs? Find out in this segment of this week's Industry Focus: Healthcare.
A transcript follows the video.
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This podcast was recorded on Feb. 24, 2016.
Kristine Harjes: Let's start with the most radical first, Bernie Sanders. What do you say?
Todd Campbell: Sure, yeah, absolutely. I thought that it would probably be good to go through some of the front-runners and discuss what their plans are. As an investing podcast, always helpful to maybe have a couple of investing takeaways here we can talk about as well.
Harjes: Sounds great.
Campbell: Yeah, and like you said, Bernie's as good a place to start as any, because you said that he's probably the most radical approach, and you're right. What Sanders is proposing is to absolutely take everything, throw it in the trash bin, and have the trash truck haul it away. He wants to get rid of Obamacare, he wants to toss aside employer-sponsored healthcare insurance, and replace it with Medicare for all. So, basically, take the Medicare program that is currently in place for people above 65 in the country and roll it out to everyone.
Harjes: The big question there, how is that sponsored? Who's going to pay for this plan?
Campbell: It's an expensive plan. You can't insure 300 million people and have it not cost you a pretty penny.
Harjes: Are there any estimates out there on how much this could cost, and how do you even come up with that estimate?
Campbell: He says $1.4 billion is what the estimate is. You always, in any presidential candidate during election season, you always have to take any numbers that get tossed around with a very big grain of salt. The number that he's tossing around is $1.4 trillion. Sorry, I don't know if I said 'billion' earlier. Trillion. $1.4 trillion.
That would be paid for by taxation. You increase the tax revenues by instituting a brand new employer tax that would be paid on wages earned by an employee, and that would be about 6.2%. Individual taxpayers would be on the hook for a 2.2% tax. There's some other tax changes as well, but those are the two biggies that would generate the bulk of the revenue necessary to pay for this Medicare-for-all proposal.
Harjes: It is kind of interesting that there are specific numbers being thrown out there. I would think this kind of thing is really tremendously difficult to estimate.
Campbell: Very hard. You get a lot of people, still, that aren't covered by insurance, even with the advent of Obamacare. You don't know what their utilization would be. You've seen what's happened with the institution of Obamacare and the fact that these insurers that are offering plans through their exchanges report they're not making any money on them because utilization of healthcare services from those patients is higher than predicted. We don't know how this is all going to shake out.
I think that the Sanders campaign is out there saying that if you earn $50,000 a year, a 2.2% tax means you're not going to be on the hook for nearly as much money as you'd have to pay for insurance out of pocket under the current schemes, even with subsidies picking up 80%, 90% of the cost of health insurance. The average person participating in the exchanges is still paying ... I think it's, like, $80 or $90 a month for their health insurance, and Sanders says that his plan would cost them about $500 a month. Using that kind of math, I guess you could argue that the plan is best for low- and mid-income or moderate-income Americans. Probably more costly, obviously, for small business owners, depending on how they handle the accounting side of paying taxes on those wages rather than being able to write off the cost of paying for the health insurance for their employees.
Harjes: Yeah, makes sense. Let's take a look at the other Democratic candidate, Hillary Clinton. She seems to be the most supportive of Obamacare, of any of the candidates.
Campbell: Lately, Hillary's stance or campaign stump speeches have said, "Before Obamacare, it was called Hillarycare." It's probably not too shocking or surprising to hear that she doesn't want to make any changes to Obamacare other than to --
Harjes: Other than. Sorry, what was that?
Campbell: Hillary's saying that she doesn't want to change Obamacare or get rid of Obamacare. She wants to just make some subtle changes on the periphery that would increase the amount of care that's provided for free: more preventative office visits. She's also said that she wants to cap the amount that people would spend out-of-pocket for their medications at $250 a month. Her plan is to take the existing Obamacare program and, in her view, improve it so that people get more value out of it and aren't getting hit as hard by the copays and the co-insurance that the media reports a lot about.
Harjes: Yeah, it does seem like when I hear about Hillary's plan and then when I see her in the news regarding healthcare, it's always about drug pricing and how much people are paying out-of-pocket. That kind of makes me feel like maybe the pharmaceutical industry would most fear a Hillary presidency.
Campbell: Yeah, I mean, but Bernie has also come out with some plans to try and rein in drug prices. I agree with you, though, that Hillary has been more vocal about it. She really jumped on the bandwagon after the Turing Pharmaceuticals story broke last year about Martin Shkreli hiking prices 5,000% on a long-standing drug.
I think that you're right that drugmakers would probably lose the most under this scheme. Insurers would take a small hit because they'd have to provide more care, but they'd probably pass that along in the form of higher premiums. Hospitals would probably be neutral under her scheme.