Healthcare and Lifesciences industry will be impacted if the US goes into recession

Healthcare and Lifesciences Industry Market Analysis (2023 - 2030)

In 2022, the U.S. healthcare sector concentrated on its most urgent difficulties, including a continued labour shortage, worker fatigue, a rise in cybercrime, and other problems that seemed insurmountable as hopes for a speedy end to the COVID-19 epidemic receded. As a result, the delivery paradigm has been turned on its head, forcing healthcare professionals to revaluate how they perceive and handle risk while delivering high-quality care and a secure working environment. Routine safety precautions might have been put off since COVID-19 made the lack of direct care personnel in 2021 worse.

Given the importance of the health care sector to the economy, financial future, and health and wellbeing of the country, accurate and timely assessments of health sector expenditure, employment, and pricing trends are essential. The yearly National Health Expenditure Accounts published by the Centers for Medicare (CMS) and Medicaid Services are the source of data that health economists and policymakers most regularly refer to and use. The National Health Spending Analysis (NHEA), which compiles information from several sources, is released annually and provides a complete analysis of national health spending, including by kind of treatment and payment method.

Several factors make the U.S. healthcare sector and its workforce special. First, health insurance covers the majority of health care costs, making patients less price sensitive than other sectors. The health care labour market includes broad licensing that protects health care tasks from being reallocated to other workers in response to price pressures. Health care is also valued by many in society as a “merited good,” meaning that providing health care to others can bring satisfaction to people who do not receive health care themselves. These factors increase the likelihood that the healthcare workforce will behave differently across the business cycle. In other words, the healthcare sector may enjoy some degree of isolation from the factors that cause other sectors to experience expansion and contraction. For example, during the Great Recession, registered nurses in the United States more than doubled their employment expectations. It should be noted that this did not happen globally. Other economies have documented numerous cases of health workforce reductions, as well as cases of substitution by less skilled forms of health workers.

It's unclear how healthcare and the current economic downturn are related. Working-class Americans will experience hardship during a recession and frequently choose to forgo necessary medical care. The American Nurses Association of Illinois is certain that everyone in America has access to affordable health care, regardless of whether or not there is another recession in the works. The healthcare industry has been thought to be immune to recessions. When Medicare pays most of the medical bills, patients are less price-sensitive. Licensing requirements for healthcare professionals help protect jobs in the healthcare sector from being outsourced to other workers in response to increased costs.  Supply chain disruptions and inflation remain a challenge for the industry, although the situation may have stabilized, RBC analysts said. They added that the factors "do not appear to have deteriorated in the second quarter" and are already factored into the forecast.

"It appears that most companies weathered the disruption as no management team raised new concerns or escalated previously mentioned situations (e.g., semiconductor chip supply). Most companies noted their ability to at least partially pass on price increases to customers, although the full impact of such increases is not yet reflected in earnings,” the analysts wrote. High deductible health plans are structured to make subscribers more cost-sensitive and have increased in prevalence in both the group and individual markets since the Great Recession. According to data from the Kaiser Family Foundation, the %age of employees enrolled in an HDHP with a savings option increased from 8% in 2009 to 28% in 2021.

How Covid-19 impacted the healthcare sector in the United States

Health spending increased in 2020 at the fastest pace of growth seen since 2002 as a result of the COVID-19 pandemic. NHE growth was only 1.9 %, a lower rate of growth than the 4.3 % increase in 2019 when spending for federal public health and other federal programs (which includes COVID-19 supplemental funding) is taken into account. This slower rate of growth is largely attributable to the decreased use of medical care goods and services as a result of the pandemic. The Gross Domestic Product (GDP) %age allocated to health climbed significantly from 17.6% in 2019 to 19.7% in 2020, the greatest increase in the NHE reports' history.

As enrolment gains in Medicaid and the Marketplace more than offset the pandemic's considerable impact on employment and the resulting loss in employer-sponsored coverage, the number of people without insurance decreased from 31.8 million in 2019 to 31.2 million in 2020. Increased federal spending in response to the COVID-19 pandemic far outweighed the negative or slow growth in private health insurance, Medicare, and out-of-pocket spending that was associated with less use of care in 2020 for almost all health care services, particularly for hospitals, physicians, and nursing homes.

How did the US healthcare sector react to the previous recessions?

One of the biggest differences from the Great Recession has been the extent to which hospitals rely on commercial health plans. Additionally, if a recession drives up unemployment and those who lose their employer-sponsored private insurance enrol in Medicaid instead (an optimistic scenario) and use of privately funded health services declines due to cost aversion, hospitals would face an additional long-term financial challenge. financial fragility that they see today. The American Hospital

“The revenues of health care organizations fundamentally depend on the ability to provide services and keep beds open. Revenue will negatively impact if a hospital has to cut services or close beds due to staff shortages,” Ms. Boston said. Ex-ante it is unclear whether care sector employment will remain stable during the economic downturn. Because individuals' ability to pay for health care depends in part on their income, decreasing personal financial resources during an economic downturn is expected to reduce demand for health care and lead to a decline in health care employment. However, Medicare revenues are not cyclical, and Medicaid and other forms of insurance cushion the effects of the loss of private insurance associated with unemployment, which could partially mitigate the decline in demand for health care.

Changes in healthcare costs & spending habits in the United States

The cost of healthcare is out of control, which is a problem for individuals, families, businesses, the government, and the overall health of the economy in the country. This is especially evident when examining the federal, state, and local governments' budgets. The majority of public funding for health care expenses comes from Medicare and Medicaid, and these expenditures are rising at the expense of other priorities like infrastructure and education. These financial constraints will undoubtedly get worse as the population matures. In terms of life expectancy, new born and maternal mortality, and illness burden, the United States also performs worse than comparable industrialized nations, perhaps in part as a result of higher medical spending and lower social service investment.

One of the factors that have kept health care spending constant in past recessions is that patients have been insulated from costs, making the demand for care what economists call "price inelasticity." The assumption that these dynamics continue today underpins widespread optimism that volumes will pick up once facilities reopen. However, the health sector's resilience to past economic crises depended on comprehensive insurance coverage. Second, the percentage of companies offering their employees high-deductible health insurance, which discourages people from seeking medical care by requiring higher co-payments before benefits kick in, rose from 5% to 30%. Even people with continuous insurance coverage will have financial difficulty receiving health care under these plans. With the widespread loss of income, an insurance landscape where patients are increasingly asked to contribute to the cost of care (even with more traditional types of coverage), and the threat of surprise medical bills from outsourced providers. network, it is unclear whether this Health care utilization will remain constant.

The healthcare industry is considered to be in recession proof looking at the historical data. However, this time one of the major causes of recession is the outbreak of covid-19 which put an immense burden on the healthcare industry. This led to supply chain disruption thus resulting in supply-side inflation. Even though healthcare is one of the essential components of consumer expenditure, it is still expected to take a hit from the potential inflation.

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