US health care sector: rising demand with uncertainty

The US health care sector is going through a lot of changes right now, similar to when the Affordable Care Act was introduced. People are using health care services more than ever after COVID-19, with increased hospital visits, doctor appointments, and medication use, especially expensive specialty drugs.

This is good news for health care providers and the drug supply chain, but it’s challenging for insurance companies. They are struggling with slow government payments and new costs from recent amendments to laws, which means they might be more cautious with their Medicare plans in 2026.

Spending on specialty medicines is increasing because of new cancer treatments and more uses for existing drugs. A recent law has made these medicines cheaper for patients, leading to increased demand. Companies that distribute drugs and manage pharmacy benefits are in a good position to profit, especially with new, cheaper versions of brands (i.e. the wave of newly approved and disseminated biosimilars) becoming available.

However, there are political and regulatory challenges. Budget talks, the possibility of new taxes on drugs, and policy changes under the current Health and Human Services Secretary are creating uncertainty. Proposed changes to Medicaid could reduce coverage, and the end of extra insurance subsidies might lower enrolment and usage.

Despite these issues, the political situation might provide some stability. With narrow Republican majorities and past failures to repeal the Affordable Care Act, major changes to healthcare programs are unlikely. There is resistance to big Medicaid cuts, and recent laws show a more moderate approach. Investors should expect small policy changes rather than big ones. Although really every forecast must be evaluated with particular caution.

In summary, the health care sector in the US is experiencing both increased demand and uncertainty. Providers and pharmaceutical distributors are doing well, while the insurers and payers face challenges. Political gridlock might help stabilise things, but the sector remains dynamic and will and has to be closely watched by investors in 2025.

This article from Jill Jortner, Investment Analyst T. Rowe Price, was originally published in European Biotechnology Magazine Summer 2025.