What Risk of Recession Spells for Hospitals?

Healthcare — still "recession-proof?" The healthcare industry has been described for generations as "recession-proof." Patients are less price sensitive when health insurance pays for a large proportion of healthcare costs. "Maybe the way we would think about healthcare is it's moving along a continuum from having low sensitivity to recession to high sensitivity to recession," Eric Jordahl, managing director with Kaufman Hall, tells Becker's. What has enabled hospitals to have low sensitivity to a recession in the past was a system driven by institutional intermediaries — insurers paid most of their members’ healthcare costs. "But I think the emergence of the consumer mentality — now more exposed to healthcare costs through the introduction of high-deductible plans — has really changed the dynamic." High-deductible health plans are structured to make enrollees more cost sensitive and have grown in prevalence in both the group and individual markets since the Great Recession. High deductibles chip away at the buffer that typically protects healthcare from a recession's slowdown on consumer spending. "If that behavior is something that consumers are comfortable with, then could added price sensitivity and the possibility of costs continuing to go up when folks may be facing a recession and growing inflation rate — could that behavior continue? One of the greatest differences since the Great Recession is the level of reliance hospitals place on commercial health plans. If a recession pushes unemployment up, and those who lose employer-sponsored private insurance instead enroll in Medicaid (an optimistic scenario) and use of privately funded healthcare services declines because of cost aversion — hospitals would face a long-term financial challenge on top of the financial fragility they see today. "Even with more people insured today, the increasing prevalence of high-cost-sharing plans and the widening gap between private and public payers each threaten access and create cracks in a previously recession-proof industry." Ms. Boston says the reliability of insurers' reimbursement and revenue, and the buffer they can create in a recession, should hardly be seen by hospital leaders as a foregone conclusion. Hospitals' ability to manage or lower expenses may look very different in 2022 or 2023 than it did during the Great Recession.