On October 20th, Capstone moderated a debate between two former members of Congress, one Republican and one Democrat, on the healthcare outlook ahead of the November 3rd midterms, in which Democrats are heavily favored to win the House and increasingly favored to win the Senate.
A Democratic majority in either chamber means oversight will dominate at least Q1 2027, with hearings and subpoenas for Health Secretary Robert F. Kennedy Jr., Dr. Mehmet Oz, the Centers for Medicare & Medicare Services (CMS) administrator, and healthcare CEOs.
Our base case is that there will be little material healthcare legislation in the next Congress. Democrats’ only realistic vehicles are must-pass bills, chiefly a debt ceiling increase we expect by the end of 2027, and the 2028 race will consume Washington by mid-2028. That leaves them less than 18 months, mostly spent on oversight and messaging bills, and an uphill path for their three priorities: restoring the enhanced Affordable Care Act (ACA) subsidies, delaying or softening the One Big Beautiful Bill Act (OBBBA) Medicaid reforms, and expanding Inflation Reduction Act (IRA) drug price negotiation.
Two Paths for the 120th Congress
We believe two paths lie ahead for the 120th Congress. On the first, Democrats hold their noses, avoid antagonizing President Trump, and accept meaningful concessions. We think this path holds more dealmaking potential than the market appreciates, particularly on drug pricing and possibly the ACA subsidies, which fit the Trump administration’s populist affordability politics. Softening OBBBA, the signature achievement of his second term, is a much harder sell.
On the second, a president whose Cabinet has been subpoenaed has little interest in deals, and Democrats see no reason to compromise with a historically unpopular administration. Expect repeated shutdowns and budget standoffs, with the debt ceiling X date as the only real legislative opening.
ACA Subsidies and Medicaid Financing
The lame-duck budget fight will go a long way toward deciding which path Congress will take. Our debate speakers expect Democrats to approach the December 11th funding deadline cautiously and push for a short-term extension, which would let lawmakers revisit the subsidies with a majority in one or both chambers.
Rather than offering payfors, Democrats will likely pursue a more-for-more deal: higher defense spending in exchange for more money for healthcare priorities such as the ACA subsidies and an OBBBA Medicaid delay. Republicans will likely demand program integrity reforms, such as minimum premiums for the ACA subsidies, as the price of their votes. Both speakers expect President Trump to sign a deal along those lines if it reaches his desk.
Drug Pricing
Drug pricing is a rare point of alignment between Democrats and the Trump administration. IRA negotiation expansion remains a top Democratic priority and polls well even in Trump-leaning districts. The president, for his part, will want deals and credit for lowering drug prices in his final two years, and his push for Most-Favored-Nation (MFN) pricing gives Democrats a natural counterpart.
Medicaid Work Requirements
Medicaid work requirements will most likely take effect on schedule. Congress has little appetite for delaying or watering them down before January 1, 2027. A legislative fix would require red-state governors to lean on their relationships with sitting lawmakers, and CMS waivers are unlikely to offer an alternative route.
PBM and 340B Reform
Neither speaker expects further pharmacy benefit manager (PBM) or 340B reform next Congress. The 2026 Consolidated Appropriations Act largely satisfied demand for PBM reform. On 340B, lawmakers increasingly see the program as exceeding its statutory intent, but the lack of consensus on a fix and resistance from some Democrats limit the probability of passage.
Read more from Capstone’s Healthcare team:
What Investors Should Know About Washington’s First Corporate Practice of Medicine Bill
Untangling the Outlook for NIH Funding and Its Impact on Pharma
FDA Cracks Down on GLP-1 Compounding While Bolstering Peptides and Hormone Therapies
