Middle Income Quintile Outspent Top Quintile on Healthcare in 2022
MyEListings' markets and economics editor and creates content about global macro events and their impact on US commercial real estate.
The healthcare landscape in the United States has changed tremendously over recent years, with costs emerging as one of the most pressing concerns for citizens.
Among these, the US middle-income quintile has seen healthcare expenditures surge by 3.4x that of the fourth quintile and more than 15x the top (fifth) quintile from 2021 to 2022.
This startling disparity has caught the attention of policymakers, healthcare professionals, and most relevantly, commercial real estate investors.
| Quintile | Over-the-year change (Dollar) | Over-the-year change (Percent) |
|---|---|---|
| Lowest Quintile | 278 | 9.0% |
| Second Quintile | 189 | 4.4% |
| Third Quintile | 1,148 | 23.9% |
| Fourth Quintile | 335 | 5.3% |
| Highest Quintile | 76 | 0.9% |
Here, we explore the reasons behind this dramatic increase and how it intersects with the world of commercial real estate.
#1 – Rising Healthcare Costs
First and foremost, healthcare costs in the US have been on an inexorable rise. Medical services, prescription drugs, and insurance premiums have all become more expensive, straining the budgets of many households.
The middle-income quintile, sandwiched between the higher and lower quintiles, feels the brunt of these escalating costs as they often lack the resources of the upper quintiles but still require comprehensive medical care.
#2 – The Inflation Dilemma
Starting from Q2 2021, the US economy began grappling with a surge in inflation, driven primarily by climbing prices for commodities. Healthcare, being an integral part of the economy, wasn't immune to this trend.
As prices in other sectors went up, so did the costs of healthcare services and products, making them even less affordable for many. This was then exacerbated by the COVID-19 pandemic.
#3 – Income vs. Expenditure Dilemma
2022 saw median incomes decline, a development that, on its own, would have been sub-optimal. However, the shadow of rising healthcare costs loomed larger still, growing at a rate that significantly outpaced negative income growth.
Middle-quintile households were less likely to work remotely, and could thus have consumed more healthcare resources, both acute care and preventative, to maintain livelihoods, straining incomes even more.
#4 – Insurance Coverage
Policies aimed at expanding insurance coverage can also play a role in influencing household healthcare spending. During the pandemic, coverages expanded in several respects that likely impacted the middle quintile disproportionately.
The potentially larger culprit lies in the fact that despite being insured, the amount of healthcare consumption still accrues statistically against household income, which suggests despite showing rising expenditures, these were borne to some extent by insurance.
#5 – Demographics
People in the middle income quintile are more likely to be parents of small children, as well as seniors. During the pandemic, these groups likely spent greater shares of their income to meet what were perceived to be urgent needs.
Clearly, the middle income quintile, driven by several forces, incurred more healthcare cost in 2022, but since much of this was likely covered by insurance, and since insurance ultimately distributes cost to the insureds, this anomaly looks worse than its effect actually is.
Commercial Real Estate: The Unseen Player
How does all of this relate to commercial real estate? The answer lies in the infrastructure that supports the healthcare industry.
As healthcare costs rise, so does the demand for specialty medical spaces, clinics, pharmacies, and other healthcare-related facilities. These specialty real estate spaces come at a premium, which in turn, gets factored into the healthcare costs paid by the end consumer.
Urbanization Continues to Add Cost
Moreover, as more people move to urban areas, as pointed out by the fact that over half the world's population, including children, now live in cities and towns, the demand for commercial real estate in these regions surges.
Healthcare providers, aiming to cater to this urban populace, invest in real estate in these high-demand areas, inadvertently pushing up their operational costs and, by extension, the costs shouldered by patients and their insurers.
The Takeaway: It's Complicated
The healthcare expenditure conundrum, particularly in the US middle-income quintile, isn't attributable to a singular factor. It's a complex interplay of rising medical costs, inflation, income dynamics, demographics, and insurance dynamics.
Add to this the intricacies of commercial real estate, which play a pivotal role in dictating healthcare costs, and we get a multifaceted scenario that demands a comprehensive understanding: medical facilities can potentially benefit from proximity to this income quintile.
Our Methodology
We used raw data from the US Bureau of Labor Statistics for purposes of this article. For the sake of relevance, according to 2021 data, the middle income quintile represented a range from $70,879 to $89,744. 2022 data was lower by 2.3% on average.
For commercial real estate investors, understanding this relationship offers insights and potential opportunities for innovation and investment in the ever-evolving healthcare landscape.
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