Healthcare investors have increasingly focused on hospital operators ahead of the upcoming midterm elections, anticipating that a Democratic win in the House could ease pressures on hospitals facing financial strain. Current polling and prediction markets suggest Democrats have a strong chance of reclaiming the House, while control of the Senate remains uncertain. Investors are wagering that a shift in congressional power may lead to policy changes favorable to hospitals, which have been impacted by recent Medicaid cuts and the expiration of enhanced subsidies under the Affordable Care Act.

Since June 1, hospital stocks have seen notable gains: Tenet Healthcare shares have risen by 61%, HCA Healthcare by 28%, and Universal Health Services by 22%, outperforming the broader market, which has remained relatively flat. Tenet’s rise has largely been supported by solid earnings from its surgery-center operations, while HCA and Universal Health Services have climbed despite reporting flat or declining profits. Nevertheless, their stock prices now trade at higher multiples than their five-year averages, partially reflecting a rotation into defensive sectors amid economic uncertainty.

The challenges facing hospitals stem from policy changes enacted during the Trump administration. New rules instituting work requirements for Medicaid recipients and more frequent eligibility verifications are scheduled to take effect, and supplemental Medicaid payments to hospitals are set to be phased down starting in 2028. Separately, the expiration of enhanced Obamacare subsidies at the end of last year led millions to lose marketplace insurance coverage, with many unable to afford care but still requiring emergency services. HCA reported that the loss of exchange coverage cost the company roughly $400 million in pretax income during the third quarter.

Despite the optimism surrounding a potential Democratic takeover, some analysts caution that a change in congressional control alone is unlikely to overturn key Trump-era healthcare policies. Chris Meekins, a policy analyst at Raymond James, points to historical precedent from the 2010 midterms when Republicans won the House promising to repeal the Affordable Care Act but ultimately failed to do so due to presidential vetoes and political gridlock. Meekins argues that unless there is a fundamental shift in President Trump’s stance, meaningful healthcare compromise remains unlikely. He estimates the probability of delaying Medicaid work requirements or eligibility checks to be under 15%, while the chance of postponing the reduction of supplemental hospital payments is around 40%.

The timing of government funding also adds complexity. Funding is set to expire on December 11 under the current Republican-led Congress, which is expected to pass a stopgap extension into early next year. This scenario would place the responsibility—and associated risks—of a potential government shutdown on whichever party gains control of the new Congress.

While a Democratic sweep could provide a temporary boost to hospital stocks and Medicaid insurers exposed to the marketplace and Medicaid enrollment, analysts warn that current valuations already reflect a degree of expected relief. Bernstein analyst Lance Wilkes suggests that Medicaid-focused insurers such as Centene and Molina might stand to gain more if Congress reaches a compromise delaying work requirements, as their revenues are directly tied to enrollment numbers.

Ultimately, investors in hospital stocks are betting on some form of policy compromise in Washington—a prospect that remains uncertain amid ongoing political divisions.