* Split Congress seen limiting action on drug prices
* "Best-case outcome" for pharma and biotech stocks
* Fresenius, DaVita buoyed by defeat for California dialysis plan
* Three states approve Medicaid expansion (Adds details on U.S. health stocks, Medicaid ballots)
Nov 7 (Reuters) - Healthcare stocks rallied on Wednesday, with U.S. health insurers reaching record highs as results of mid-term elections were seen reducing the likelihood of action to cut medical costs and programs in the world's biggest and most profitable market.
Republicans lost control of the House of Representatives to the Democrats, a setback for President Donald Trump, but increased their grip on the Senate, signalling likely policy gridlock in Washington.
Both parties are agreed on the need to bring healthcare costs down but are deeply divided on how.
"This is probably the best-case outcome for pharmaceutical and biotech stocks," said Lorenzo Biasio, healthcare analyst at Credit Suisse's private banking unit.
"With a split Congress, the base case is that a limited amount of legislation will move forward. You are likely only going to see some very incremental changes to drug pricing legislation beyond the plans already floated."
There were other positives for healthcare companies.
Shares of health insurers gained after voters in three states, Idaho, Utah and Nebraska, approved expanding their state Medicaid programs for low-income people.
Humana Inc, which also posted a better-than-expected quarterly profit on Wednesday, saw its shares hit an all-time high of $342.73 while those of UnitedHealth and Anthem Inc also touched record highs.
Collectively, the results in the three states could add 150,000-200,000 new Medicaid-covered lives, said Matthew Borsch, an analyst with Canadian bank BMO.
German-based dialysis provider Fresenius Medical Care and U.S. peer DaVita Inc also rose as California rejected a proposal that would have limited the rates dialysis clinics can charge commercially insured patients.
Wall Street analysts had warned that a Democrat sweep of both House and Senate could have sparked a sell-off in pharma, biotech and drug supply chain stocks.
Healthcare has served as something of a safe haven for U.S. investors in recent months, amid a sharp fall in tech stocks, with the sector up nearly 10 percent this year against 3 percent for the overall S&P 500.
U.S. drugmakers such as Merck & Co, Pfizer Inc and Johnson & Johnson rose in morning trading, gaining around 1-2 percent each.
In the European healthcare sector, drugmakers Sanofi , Roche, AstraZeneca and GlaxoSmithKline also gained around 1 percent each, as did medical devices group Smith & Nephew. (Additional reporting by Ludwig Burger in Frankfurt and Lewis Krauskopf in New York Editing by Peter Graff and Patrick Graham)