Economists are becoming less concerned about a recession as the Federal Reserve steers towards a "soft landing" and the job market cools. Joe Brusuelas, Ph.D. chief economist at RSM, asserts that a recession is unlikely as long as the economy generates over 200,000 monthly jobs.
Traditionally, healthcare has been regarded as "recession-proof" due to its essential nature. Terry Collins, CFO of Grand River Health Hospital, explains that people's healthcare needs persist regardless of economic distress. In fact, healthcare needs might even increase during a recession due to the additional stress people experience.
However, CFOs caution that hospitals are not immune to macroeconomic risks. Gene Finley, CFO of J Paul Jones Hospital, explains that initially, hospitals may appear recession-proof, but as the recession prolongs, job losses and reduced insurance coverage impact hospitals. This results in an increase in self-pay patients and bad debt.
The healthcare sector already faces a significant debt crisis, with hospitals holding $12 billion in impaired bonds, the most in the past 15 years. Some health systems burdened by pandemic-era expenses have been forced to cut back on services. Economic instability could exacerbate the issues faced by hospitals with high debt levels.
Some CFOs differentiate the insurance side of the industry from hospitals to analyze whether healthcare truly is recession-proof. Jim Hermes, CFO of Cibola General Hospital, explains that the insurance side of healthcare is somewhat recession-proof due to annual rate increases and risk mitigation. However, healthcare providers dependent on Medicare and Medicaid are subject to budget constraints and rarely receive sufficient rate increases to offset inflation. During recessions, contributions to these programs decline, resulting in reimbursement cuts.
The ability of patients to pay for healthcare is heavily influenced by employment and insurance coverage. Mass unemployment significantly impacts a patient's ability to pay for care, and an uptick in unemployment and under-employment leads to the loss of insured business. Unemployment also increases the number of uninsured individuals, leading to higher bad debts arising from emergency room visits.
Despite the risks posed by a recession, healthcare remains insulated and able to withstand periods of downturn. While elective healthcare services not covered by insurance may decrease during an economic downturn, Terry Collins highlights that these factors balance each other out during recessions. This suggests that the healthcare industry is indeed "recession-proof," at least for short periods.
