Wise Thoughts - Shifting Assumptions

This special edition of Wise Thoughts was co-authored by Nancy Wise and Quinn Pidgeon

New Assumptions

In Spring Street Exchange's 2025 Strategy in Action research, 70% of the healthcare executives surveyed expect major change in the industry in the next 2-5 years. Only 2% felt 'very prepared' to adapt to this level of change. With the passage of the 2025 Budget Reconciliation Act (the “One Big Beautiful Bill Act,” or OBBBA), many health plans are especially concerned about the future outlook. This rising uncertainty makes planning more challenging and the future seem more fragile than usual.

We became interested in exploring how healthcare stocks across industry sectors were performing in relation to key events. This was not only an inherently interesting question but also one that provided insight into how healthcare has been trending compared to other industries, how these dynamics have changed, and what opportunities or risks could lie ahead. We found that some of the long-held rules of the road about how the healthcare sector relates to other parts of the economy no longer hold true. This rerouting led us to think about shifting assumptions overall and consider active steps we can take to reduce risk moving forward.

Connecting events with stock performance 

This issue of Wise Thoughts was supported by rich and creative analysis conducted by Quinn Pidgeon, one of Spring Street Exchange’s Analysts. He developed a tool to track some of the key healthcare stocks by organizing them into four indexes based on the primary sectors they represent, including: 

  • Medicare Advantage Index: UnitedHealth Group (UNH) and Humana (HUM) 

  • Medicaid / Individual ACA Index: Centene (CNC) and Molina (MOH) 

  • Commercial: Elevance (ELV) and Cigna (CI) 

  • Providers: Tenet Healthcare (THC), HCA Healthcare (HCA), and Universal Health Services (UHS) 

Below is a chart showing the performance of each index year-to-date. This chart covers the period between January 2 and August 6, 2025, and reflects the four custom indices listed above, as well as SPY, an exchange-traded fund (ETF) that tracks the S&P 500 index. The indices are weighted to account for relative market size. We also added vertical lines to denote key events that may have affected stock performance during this time (see the end of this document for details on the vertical lines correlated with events).

Healthcare is traditionally a stable sector, especially during times of uncertainty. However, as the chart shows, 2025 has been a difficult year for healthcare investors. Year-to-date through August 6, the Medicare Advantage, Medicaid / Individual ACA, and Commercial Indexes were all below their January levels. The declines are steep: approximately -47 percent for Medicare Advantage and -53 percent for Medicaid / Individual ACA. By contrast, the Provider and S&P 500 Indexes were up approximately 20% and 8%, respectively, since January.

What’s going on?

Despite the historical view of healthcare stocks as a haven during turbulent times, such as during trade disputes (see the divergence between the S&P 500 and our indexes immediately after President Trump’s April 2 “Liberation Day” tariff announcement), many shareholders are now looking at alternative ways to balance their portfolio. For payers in particular, it has been a difficult year marked by declining profitability and missed targets. Government-sponsored plans faced some of the strongest headwinds:

There are similar themes across the indices. As Morningstar Investment Services notes, “rising medical costs, heightened regulatory pressures, and disappointing earnings guidance (especially in Medicare Advantage products) have been a toxic combination to [payers’] valuations.” Some of these challenges may reflect the difficulty of forecasting in a highly disrupted environment. Many payer organizations are still adjusting their models to account for post-pandemic care patterns, particularly in behavioral health, where utilization trends have shifted quickly and unpredictably.

That said, not all national payers are in the same boat. For instance, Humana’s stock has remained relatively flat compared to the beginning of the year, and it is the only national payer to avoid an earnings miss so far for the second quarter. Humana addressed hurdles within Medicare Advantage before the other national payers, which may have given them a headstart in adjusting for some of the same trends.

The future does not always follow the past

Investors, planners, and healthcare executives often assume extended historic trends will continue into the future. For decades, the healthcare sector generally followed this pattern: its earnings and returns outpaced the broader market, and it tended to outperform during recessions.

But our data reflects a rerouting. The divergence between historical expectations and current performance suggests that some of the old rules may no longer apply. This is part of a broader pattern of disruption across the economic landscape. As key factors underlying our assumptions shift and new dynamics take hold, these familiar guideposts become less reliable. Accumulating shifts can compound unpredictably, increasing the likelihood of surprise and volatility ahead.

As assumptions change across healthcare and beyond, scenario planning becomes a powerful way to explore alternate routes. Scenarios help leaders navigate uncertainty by testing different paths, surfacing critical questions, exploring new implications, and anticipating how the rules of engagement may continue to evolve.

The variations that we test through these exercises can be sobering, as economic news remains uncertain. Payers and providers are recognizing that past successes do not mean that an organization is equipped to withstand future ones under new conditions. Many of you are likely already exploring both best- and worst-case scenarios as part of your ongoing discipline. The latter can be especially difficult and all the more important.

We’d love to hear about your metaphorical or physical Scenario-Readiness Room and are always happy to share our tried and tested methods on pulling these together.

In the meantime, we hope you find Quinn’s connection between events and healthcare sector performance interesting. His spreadsheet supporting this is fun to explore – feel free to reach out for a virtual tour!

We look forward to connecting with you.
Nancy and Quinn