Welcome to Thoughts on the Market.
I'm Ariana Salvatore, Morgan Stanley's U.S. public policy strategist.
And I'm Erin Wright, U.S. healthcare services analyst.
Today, we'll talk about what the U.S. government shutdown means for healthcare.
It's Thursday, October 30th at 12 p.m. in New York.
Thus far, it seems like markets haven't really been paying too much attention to the government shutdown.
Obviously, we're aware of the cumulative economic impact that builds every week that it lasts, but we haven't seen any movement from the political front either this week or last, which signals that it could be going on for a while longer.
That being said, the end of this month is an important catalyst for a few reasons.
First of all, you have the potential rollover of SNAP benefits.
You have another potential missed military paycheck and, most importantly, the open enrollment period for health care plans.
Polling is still showing neither side coming out on top with a clear advantage.
Absent that changing, you probably need to see one of two things happen to have any movement forward on this front.
Either more direct involvement from President Trump as he wraps up the APEC meeting or some sort of exogenous economic event like a strike from air traffic controllers.
Those type of events obviously are difficult to predict this far in advance.
But up until now we know that President Trump has not really been involved in the debate and the FAA seems to be operating a little bit with delays, but as usual.
So, Erin, let's pivot to what's topical in here from a health care policy perspective.
What are investors that you speak with paying the most attention to?
You bring up some important points, Ariana.
But from a policy perspective, it's very much and always top of mind for health care investors here.
Right now, it is a key negotiating factor when it comes to the government shutdown.
So the shutdown debate is predominantly centered around the Affordable Care Act or the health care exchanges.
This was a part of Obamacare.
It was a program where individuals can purchase standalone health insurance through an exchange marketplace.
The program has been wildly popular.
It's been wildly popular in recent years, with 24 million members growing 30 percent last year, particularly with enhanced subsidies that are being offered today.
So those subsidies are expected to expire at the end of this year.
And those exchange members could be left with some real sticker shock, especially when we're going to see premium increases that could, on average, increase about 25 to 30 percent, in some states even more.
So folks are really starting to see that now.
November 1st will be a key date here as open enrollment period begins.
Right.
So as you mentioned, this is pretty key to the entire shutdown debate.
Republicans are in favor of letting the expanded subsidies roll off.
Democrats want to restore them to that COVID level enhancement.
Of course, there's probably some middle path here.
And we have seen some background reporting indicating that lawmakers are talking about a potential middle path or concession.
So talk me through what's on the table in terms of negotiating a potential compromise or extension of these subsidies.
So we could see a permutation of outcomes here.
Maybe we don't get a full extension, but we could see something partial come through.
We could see something in terms of income caps which restrict kind of the level of participants in the AC exchanges.
You could see out-of-pocket minimums, which would eliminate some of those shadow members that we've been seeing and have been problematic across the space.
And then you could also grandfather in some existing members that get subsidies today.
So all of those could offer some degrees of positive and some degrees of relief when it comes to broader healthcare services, when it comes to insurance companies, when it comes to others that are participating in this program, as well as the individuals themselves.
So it's really a patient dynamic that's getting real here.
A lot is on the table, but a lot is at stake, with the potential for the sunsetting of these subsidies to drive 4 million in uninsured lives.
So it is meaningful.
And I think that that's something we have to kind of put into perspective here.
So we'd love to know Ariana though, beyond health care, what are some of those key debates in terms of the negotiations around the shutdown?
Healthcare really is central to this debate.
So, aside from just the ACA subsidies that we talked about, some Democrats have also been pushing for a repeal or rollback of some of the pieces of the One Big Beautiful Bill Act that passed earlier this year.
That was the fiscal bill Republicans passed through the reconciliation process.
That included some cuts to Medicaid down the line.
So there's been talk around that front.
I think, more of a clear path on the subsidies front, because that seems to be something that Republicans are treating as an absolute no-go.
Some of the other really key debates are around just kind of how to keep the ball rolling while we're still in the shutdown.
So I mentioned SNAP at first, the potential release of some contingency funds there.
Again, the military paychecks are really critical.
And, of course, what this all means for incoming data, which is really important not just for investors but also for the Fed, is to kind of calibrate their next move, in particular as we head into the December meeting.
I think we got a little bit of a hawkish surprise in yesterday's meeting, and that's something that investors were not expecting.
So obviously, the longer that this goes on, the more those risks just continue to grow.
And this deadline that we're talking about is a really critical one.
It's coming up soon.
So we should have a sense of how our prognosis pans out in the coming days.
Thanks for the conversation, Erin.
Great talking to you, Ariana.
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