Many have always said the most recession proof industries are government and health care. With state budgets in crisis and a federal government running up debts like a 14 year old with a stolen credit card, there isn’t much money left for governments to employ. Teachers are getting pay cuts, and if you aren’t laid off yet you’ve probably heard the word “furlough” being tossed around.
This leaves health care as the last recession proof industry, or at least it did. My local paper has been running stories about how our hospitals are really getting killed in this recession. It’s not just happening near me, it’s happening near you too. The Detroit News ran a story this week about how their local hospitals are also suffering. But why are hospitals losing so much money? Health care hasn’t gotten any cheaper!
The problem comes back to the recession, as most problems do. Some people that just can’t pay for the care they received. Hospitals are seeing an increase in unpaid health care bills. Whether it’s because they are forced to take in people at emergency rooms or simply people with no money to pay, these bills are adding up.
Further pains come from investment losses, like our friends in the insurance industry. Most hospitals are non-profit institutions, so when they have extra income it is usually reinvested in the system. When there isn’t any reinvestment to be done, the hospital invests the money in bonds, stocks, and all that other fun stuff we all do. This allows them to grow their reserves and add that childrens cancer ward they’ve been eying. If their investments were to go down in say, a recession, the hospitals lose money.
Well thanks to the recession hospitals all over the country are bleeding cash like a banger that just took a 9mm hollow point to the jugular. At least that’s what they want you to think…
It just wouldn’t be a good Weakonomics post if I didn’t add a little clarity to what’s going on. Think about it. Obama is in the White House, “health care reform” is the second largest buzz word/term after “economy”, and there is a huge political agenda to bring health care costs down for the American taxpayer. If you were running a hospital, would you perhaps see an incentive to announce “Hey! The recession is hurting us too!!!” Ya damned right, and you better believe that if I were in charge at a hospital, I’d be shouting it from the hilltops.
Here’s the thing. Hospitals basically add to their bottom line in two ways. On the one side you’ve got the income from services, like surgery, recovery, and whatever it is Dr. House does. They charge you and insurance companies for this service. On the other side they have investment income. When it comes to publishing their income statements all of this is added together. Now let’s say you made $100,000 in 2008 from your job. But you also had a $1 million investment account that dropped to $500,000 in value. You could tell people that in total you lost $400,000 last year. You aren’t lying, but it doesn’t tell the whole story. Your $100k income is safe, and you didn’t sell your investments, just their value decreased.
I don’t dispute that hospitals are losing more money from patients not paying, but they are still making big bucks and the only losses they are experiencing are “book losses”. So I take it back, health care isn’t suffering, they’re playing us for fools so we don’t crack down on health care costs.