Bottom-up sectoral and company-level analysis plays a critical role in the investment process of the Global Fixed Income team. As such, we are actively tracking the policy proposals of leading Democratic presidential candidates. In this note, we consider the proposals of four leading candidates in the early-state primaries, focusing on the health care, financial and energy sectors. Many of the policy proposals of Senators Warren and Sanders represent a significant departure from the status quo. However, if either wins the presidency their ability to move forward with their agenda would be greatly constrained without control of both houses of Congress.

With the Democratic primaries now swinging into gear, investors are beginning to pay closer attention to the policy proposals of those candidates that are performing well in the early contests and in national polls. This attention will only increase as the year progresses, with investors focusing not just on specific proposals but also prospects for the emerging frontrunner in the general election. Within the Global Fixed Income team at MacKay Shields, we are already beginning to track the proposals of leading candidates, given the important role that bottom-up sectoral and company-level analysis plays in our investment process. From a top-down perspective, we are also considering the fiscal plans of leading candidates, as well as the economic impact of their other legislative and regulatory priorities.

In this, our first note on electoral politics, we consider the proposals of the four leading candidates in the early-state primaries. Given the breadth of proposals of the candidates, we focus in on three areas of key interest to investors – health care, finance and banking, and energy. While we consider the potential impact of various proposals, we are cognizant that the likelihood of adoption of many of the candidates’ ideas will be quite limited if they require passage through Congress. This is because even if the eventual Democratic nominee goes on to win the presidency, Democrats are still unlikely to emerge from the election with a Senate majority. Prospects for a filibuster-proof majority are even slimmer, if not entirely off the table.1 Without control of both houses of Congress, many of the Democratic candidates’ proposals stand poor odds of being enacted into law. This is particularly true of the more expansive policies of the populist candidates, Senators Warren and Sanders. Given this dynamic, we draw distinctions between those policies that require legislation, and those such as strengthening consumer protections and a fracking ban on federal land, that can be pursued strictly with executive authority.

Health Care

The healthcare sector has been a major focus for US presidential elections over the past two decades, primarily driven by rising healthcare expenditures that are far out-pacing household income growth. The average worker’s contribution to a family plan last year was $6,000, while employers contributed an additional $14,600.


As a result of rising healthcare costs, there have been many attempts to reform the system over the years, starting most recently with the Affordable Care Act “(ACA”) passed under President Obama. The ACA created public healthcare exchanges and expanded access to state Medicaid programs. The ACA failed to bend the cost curve due partly to its limited scope as well as political partisanship, which ultimately led to the elimination of the individual mandate in 2019, new Medicaid work requirements in some states, and termination of cost-sharing subsidies from the Federal government to health insurers.

Healthcare remains a top issue for voters, and threats to the ACA’s viability helped Democrats regain control of the House of Representatives in 2018. With that in mind, the Democratic candidates see healthcare policy as a way to win back the White House in 2020. Many top Democratic candidates, including former Vice President Joe Biden, Senator Bernie Sanders, Senator Elizabeth Warren, and Mayor Pete Buttigieg, all support expanding the governments’ role in healthcare. However, there remains a sharp divide between those in favor of expanding Medicare to those who want it (Biden and Buttigieg) and those in favor of single-payer health care, colloquially known as “Medicare-for-All” (Sanders and Warren).

Former Vice President Biden’s and Mayor Buttigieg’s plans seek to build on the ACA, with both candidates releasing proposals to make the insurance marketplace more affordable for individuals through increased subsidies and a cap on premiums. These plans result in the least disruption to the healthcare system. The proposed expansion of Medicare would be beneficial to managed care firms2 due to increased membership count. If Medicare were to expand it would be slightly negative for health care providers given that, on average, Medicare reimburses less than commercial insurance.

Senators Sanders and Warren have both proposed versions of single-payer healthcare, which would be highly disruptive for health care providers and drug manufacturers and potentially put private health insurers out of business. In our view, the probability of single-payer healthcare being enacted remains low. While single-payer remains popular with the Democratic Party’s progressive base, a majority of Americans3 are opposed to such plans given the higher taxes needed to fund them, the elimination of employer-provided insurance, and the reductions in options for care. Furthermore, for either plan to be enacted, the Democrats will have to win back control of the Senate with a filibuster-proof majority while retaining control of the House – an outcome that we view as highly unlikely.

See below for a detailed list of each candidate’s key positions, likelihood of enactment if elected, and sub-sectors that will be negatively impacted. Additionally, we have outlined three topics: 1) drug pricing reform, 2) surprise medical billing, and 3) opioid litigation that have broad bipartisan support.



Financial Sector

Democrats are often labelled as the party of regulation, while Republicans are generally characterized as favoring limited regulation. This broad generalization is also evident in the banking sector, with Democrats generally favoring stronger bank regulation and Republicans a more laissez-fair approach. Thus, as we head into a presidential election year, it is worth considering the views of the various Democratic presidential nominees to better assess how the financial sector could be reshaped if the Democrats retake the White House.

Under a Democratic presidency, the final form of bank regulation will depend on who wins. Currently, there is a spectrum of financial sector policy proposals that reflects each Democratic candidate’s leanings on the role of financial sector regulation. At one end of the spectrum are the more centrist democrats who stress overall economic growth and prosperity. For these candidates, such as former Vice President Joe Biden, bank regulation is about safeguarding the safety and soundness of the financial system, protecting the consumer, and ensuring those creating risks are held accountable. These Democrats are also likely to believe that regulations taken too far can hurt the economy and threaten job growth.

At the other end of the spectrum are those Democratic candidates whose proposals carry the risk of crossing over from prudential regulation to overburdening the financial sector and ultimately restricting economic growth. We place Senators Sanders and Warren in this group. From their viewpoint, banks are seen as regularly abusing consumers through punitive interest rates while rewarding management teams with excessive paychecks. Furthermore, the large US banks are seen as exerting too much control over the economy and create a “lose-lose” situation for taxpayers, who, in the past, have borne the cost of bank failures. For these candidates with the view that large banks are a possible source of economic (and possibly social) instability, preventing this risk from (re-)occurring, requires not just further regulation, but breaking up the largest financial institutions to render them less systemically important.

Lastly, there is a risk that moderate Democratic candidates are pulled more towards the left side of the financial policy spectrum given the influence of Progressive Democrats within the party. This may mean that Democratic financial sector policy proposals become less financial-sector friendly as the election season progresses.


Energy

Climate change and energy policy have remained hot-button issues during the 2020 Democratic debate cycle and remain in stark contrast to Donald Trump’s Environmental Protection Agency rollbacks and “drill, baby, drill” energy philosophy. While the most progressive candidates (Senators Warren and Sanders) certainly have the most prohibitive energy views, we note that all of the leading Democratic candidates have released policies that could meaningfully impact US energy outcomes relative to the status quo. Additionally, it is worth mentioning that the general electorate (and as a subset, the investment community) appears to have also shifted to a stronger desire for environmentally sustainable energy practices, which could further influence energy policy going forward.

While the energy sector impact of a Democratic win would depend on the candidate, we also believe that outcomes could differ substantially from current proposals. Many energy policy proposals ranging from the most progressive (fracking ban everywhere/100% renewable power generation in 10 years) to the more centrist (tighter regulation and emissions targets) would require partnering with Congress to approve necessary legislation. Given this requirement and the fundamental challenges associated with a significant reduction in domestic crude production, we believe the more realistic energy outcome following a Democratic win is a fracking ban on federal lands (estimated at 22% of oil production and 12% of natural gas production) given executive authority in this area. On renewables targets, we also believe that some accelerated clean energy goals are not realistic given the current mix of energy generation, current state goals, and large public and private sector expenditure requirements. Nonetheless, we do note growing incentives to transition over time including improving renewables costs and battery storage capabilities, shifting consumer sentiment in favor of renewable-generated power, and advancing state targets. With regard to power generation, the debate among candidates continues to focus on whether natural gas and nuclear power remain part of the solution or part of the problem.


1Democrats currently control 47 of the 100 seats in the Senate, including two Independents who caucus with them. To push through partisan legislation without Republican support, Democrats would need to win the White House and pick up three Senate seats in November (while also retaining control of the House). According to the Cook Political Report, only six seats currently held by Republicans are considered competitive in the election. Meanwhile, two seats held by Democrats are considered competitive, and one of these is in Alabama, a traditionally Republican-leaning state. Not only do Democrats face an uphill battle simply to emerge with a majority; in most circumstances, 60 Senate votes are required to end debate and move to a vote on legislation. The electoral math suggests that such an outcome in the election is extraordinarily remote.

2 Managed Care is a health care delivery system organized to manage cost, utilization, and quality.

3https://thehill.com/hilltv/what-americas-thinking/428958-poll-voters-want-the-government-to-provide-healthcare-for