Healthcare Expansion Boosts Demand for Space

The expansion of healthcare insurance brings far-reaching implications for development, investment and occupancy of MOBs and other healthcare-related assets.

The vagaries of the yuan are getting most of the economic headlines this week, but of longer-term interest—especially for owners and managers of healthcare-related real estate—are the latest reports on the rates of U.S. health insurance coverage. Data from the CDC’s National Health Interview Survey (NHIS) released Wednesday by the Centers for Disease Control shows a drop in the percentage of uninsured people. The trend has far-reaching implications for development, investment and occupancy of medical office buildings and other healthcare-related real estate.

In the first quarter of 2015, 9.2 percent of respondents to the survey said they were uninsured, down from 11.5 percent during the first quarter last year. That is the lowest rate since the government began keeping track in 1972. In raw numbers, that means the uninsured fell from about 36 million to about 29 million.

The surge reflects a five-year trend since the enactment of the Affordable Care Act. From 1997 to 2010, the percentage of uninsured adults age 18 to 64 generally edged up, and stood at 22.3 percent in 2010. By the first quarter of this year, the number of uninsured in that age group had dropped to 13 percent. Similarly, the percentage of uninsured children fell from 13.9 percent in 1997 to 4.6 percent in Q1 2015. The growth in the number of insured has been both through public- and private-sector insurance, as the ACA provided for the expansion of Medicaid in states that cooperated with the federal government on the matter, as well as the growth of private insurance through its system of mandated private coverage and subsidies.

A separate report this week by Gallup noted that “seven of the 10 states with the greatest reductions in uninsured rates have expanded Medicaid and established a state-based marketplace exchange or state-federal partnership, while two have implemented one or the other.” On a state-by-state basis, Gallup found that Arkansas and Kentucky have seen sharpest reductions in their uninsured rates since 2013. In Arkansas that year, 22.5 percent of people lacked health insurance; now 9.1 percent are uninsured. Two years ago, 20.4 percent of Bluegrass State residents lacked health insurance; now it’s 9 percent. Only Texas, which has steadfastly rejected Medicaid expansion despite lobbying for it by the healthcare industry, still has an uninsured rate above 20 percent.

As a rule of thumb, the lower the rate of uninsured people, the higher the demand for medical services. Since 2010, this has been consistently predicted, both in real estate’s healthcare sector and in the healthcare industry itself. And it seems to be happening: earlier this year, in Colliers’ 2015 Medical Office Space Outlook Report, the company noted that MOB vacancy rates had dropped to 11 percent and were forecast to continue to decline (except for older buildings), and cap rates were continuing to compress. Part of the trend is demographic, as the healthcare needs of the Baby Boomers grow, but the steady rise of insured Americans is also influencing demand.