Healthcare Property Owners Face New Challenges

The healthcare real estate sector is facing a potential challenge due to a weakening insurance market, which could lead to fewer insured patients and higher uncompensated care costs for healthcare providers.

Enrollment Decline

Enrollment in Affordable Care Act (ACA) marketplaces has fallen to 19.2 million from 21.8 million last year, according to figures from insurers and state marketplaces, with the Congressional Budget Office expecting it to fall below 17 million by the end of this year.

The loss of enhanced subsidies is a major factor, with the average monthly payment for marketplace coverage rising to $178 from $113, and the average amount an individual must pay before coverage begins increasing nearly 40% over the past year to $3,800.

Insurers have proposed a median premium increase of 15% for 2027, which would make coverage even less affordable for people who do not receive insurance through an employer or public program.

Impact on Healthcare Providers

The decline in insured patients could affect the financial health of healthcare providers, as people without insurance may delay prescriptions, elective procedures, and other care, but hospitals are still required to provide emergency treatment regardless of a patient’s ability to pay.

Unpaid care was up an average of 16% in May from a year earlier, according to Kaufman Hall, and HCA Healthcare has said the newly uninsured population could reduce its operating profit by at least $1 billion this year.

Those numbers matter because the healthcare real estate sector ultimately depends on provider economics, and a hospital system with deteriorating margins may postpone a replacement facility or pull back on a new outpatient location.

Risk and Underwriting

The risk is unlikely to be uniform, with properties leased to major health systems with strong balance sheets and diversified revenue sources potentially being better positioned than facilities occupied by independent practices or providers with significant exposure to Medicaid and exchange-plan patients.

Investors and lenders may need to place more weight on the tenant’s financial profile rather than treating healthcare as a broad defensive category, and consider factors such as a provider’s dependence on Medicaid and marketplace coverage, its level of uncompensated care, and its pricing power in the local market.

Lease structure also matters, with long-term, investment-grade net leases potentially insulating owners, but not eliminating credit risk if a tenant’s operating conditions deteriorate over time.

One potential consequence of this shift is that providers may become more disciplined about where and how they expand, favoring markets with strong insured populations and growing household incomes, which could, in turn, affect the demand for certain types of healthcare facilities, such as medical office buildings and ambulatory surgery centers, and influence the retail experience for patients.

Healthcare providers and investors alike need to adapt to a new reality, one that requires a deeper understanding of the complex relationships between insurance coverage, healthcare demand, and the financial stability of providers, as the healthcare sector continues to evolve.