By Tami Kamin Meyer
The U.S. health economy commands the largest sector in the largest global economy. According to Trilliant Health, healthcare spending reached $4.1T in 2020, representing nearly one-fifth of the U.S. gross domestic product (GDP).
While the healthcare industry has long been considered recession-proof, several factors are causing some experts to rethink that proposition. For example, staffing woes at countless medical facilities and hospitals across the country negatively impacts their ability to treat patients. Fewer patients translates into lost profits. Less money to invest in updated equipment, physician and nurse training, and more only exacerbates a sometimes-dire financial situation.
“Whether the healthcare industry is ‘recession-proof’ is a subject of debate. On one hand, the demand for healthcare services does not diminish significantly even in tough economic times. People still get sick and require medical attention regardless of the economy,” said Zak Holdsworth, CEO and co-founder of Hint Health. Healthcare is often viewed as a non-discretionary expenditure, meaning people prioritize healthcare over other non-essential spending, he said.
“Moreover, certain sectors within healthcare, such as pharmaceuticals, biotech, or certain medical equipment may even see increased demand during recessions as they contribute to addressing widespread health issues or pandemics,” Holdsworth said.
Hidden vulnerabilities
According to Russ Richmond, MD, CEO and co-founder of Laudio, the American economy and its healthcare system are strongly intertwined.
“In recessionary times, patients are exposed to first dollar, out-of-pocket expenses, and elective procedures,” Richmond said. “Those are really important to the economics of the healthcare system.”
Still, there could be “trouble ahead,” for the healthcare system, he cautioned. “There has been a 30% increase in labor costs because of the pandemic but there has not been a corresponding increase in revenue,” said Richmond.
When the overall economy is in upheaval, as it is now with higher interest rates, inflated grocery prices, and other financial challenges, people “will delay elective procedures. It’s the reduction in elective procedures that drives the healthcare system,” said Richmond.
Holdsworth disagrees that elective healthcare declines as the economy worsens.
“People still get sick and require medical attention regardless of the economy. Healthcare is often viewed as a non-discretionary expenditure, meaning people prioritize healthcare over other non-essential spending,” he said.
Moreover, said Holdsworth, certain sectors within healthcare, such as pharmaceuticals, biotech, or certain medical equipment, may even see increased demand during recessions as they contribute to addressing widespread health issues or pandemics.
What it means if healthcare is not recession-proof
Healthcare is a major source of the GDP. “Generally, it’s the biggest employer in any community so it means losses of jobs, less spending on capital budgets and other things that drive capital growth,” said Richmond.
It’s precisely because healthcare accounts for approximately one-fourth of the American GDP that it is recession-proof, argued Alex Meshkin, CEO of Flow Health.
Due to its enormous impact on the American economy, the healthcare system “will be protected by our government,” he said.
Meshkin puts his money where his mouth is.
He personally invests in public companies that are healthcare plans, he said. He also noted how hospitals and the American healthcare system, in general, carry great lobbying weight on Capitol Hill.
“They tend to win,” he said.
That leverage has translated into increased government regulations on the healthcare system. “The more the government creates new regulations, the more layers of healthcare we have in the United States,” said Meshkin.
Meanwhile, the aging American population means the need for healthcare in the U.S. will rise, not lessen, he said. Moreover, “most patients don’t pay directly (for healthcare). The government or insurance do, which removes the pressure on individual consumers.”
Because of that, Meshkin said he is “very bullish on the American healthcare system.”
Still, a recession in the American economy has the power to level the healthcare system, too. According to Richmond, notable impacts, some of which have already occurred, are directly related to dips in the economy.
Some examples:
- The closures of rural hospitals, resulting into uneven access healthcare for citizens in the area
- Whopping price increases for healthcare, prescriptions, medical professionals, and other related expenses
- Increased hospital system mergers, leading to fewer facilities and decreased staff to treat patients
“While the healthcare industry may be more resilient to economic downturns than other industries, it is not entirely immune to the effects of a recession,” Holdsworth said.
Tami Kamin Meyer is an Ohio attorney and freelance writer. Her website is www.tamikaminmeyer.com.
