Economy Watch: Rising Tide of Insured Promising for CRE Investors

If you are thinking about diversifying, the medical office space is probably worth checking out.

The vagaries of the yuan are getting most of the headlines this week, but of longer-term interest — especially for owners and managers of healthcare-related real estate such as Medical Office Buildings — are the latest reports on the rates of U.S. health insurance coverage, which came out on Wednesday. Data from the CDC’s National Health Interview Survey (NHIS) shows a drop in the percentage of Americans currently without health insurance. In the first quarter of 2015, 9.2 percent of respondents to the survey were uninsured, down from Q1 2014, when 11.5 percent did not have health insurance; the current rate is the lowest one since 1972, when the government began keeping track. In raw population numbers, that means the uninsured fell from about 36 million to about 29 million.

The uptick is part of a five-year trend since the enactment of the Affordable Care Act in 2010. From 1997 to 2010, the percentage of adults 18-64 who were uninsured generally edged up, and stood at 22.3 percent in 2010. As of the first quarter of 2015, the number of uninsured in that age group was 13 percent. Likewise the number of uninsured children is down 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 American Retirement Association 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 compared with 2013. In Arkansas, 22.5 percent of people lacked health insurance that year, and now it’s 9.1 percent. In Kentucky, 20.4 percent lacked health insurance in 2013, and now it’s 9 percent. Only Texas, which has steadfastly rejected Medicaid expansion despite lobbying for it by the healthcare industry in the state, still has an uninsured rate above 20 percent.

The lower the rate of uninsured people, generally speaking, the higher the demand for medical services. This has been predicted consistently within the healthcare industry since 2010, as well as the part of the real estate industry that serves healthcare. 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 continuting to compress. Part of the trend is demographics, since the Baby Boom is now a grey mass needing more healthcare, but the upsurge in insured Americans is also a driver in demand.