How will the Biden Administration affect the largest sector of the US economy, Healthcare?

How will the Biden Administration affect the largest sector of the US economy, Healthcare?

medical office and doctor

If you have not been to the White House Priorities website, the major areas of focus for the Biden Administration are Climate, Immigration, Equal Rights, Economy, Global Standing and Health Care. 

After having carefully read each paragraph, and ultimately reading between the lines, the only focus that does not have a real sense of urgency is Health Care. In fact, the Biden Administration seems content to keep the current health care system in place, despite calls from the progressive left to move towards a single payer system similar to Canada’s health care system in which the government determines the quantity and quality of health care for all.

Despite the talking points coming from the varied special interest groups and politicians, let’s dive into what the experts are saying is going to happen to our health care system in the next few years.

Bigger fish to fry

Given today’s heated rhetoric, both politically and socially, health care is simply not a priority for the Democrat controlled federal government.

Given other challenges in the US that need to be dealt with first – such as the COVID-19 response, additional Medicaid funding and economy and tax reform – dramatic changes are unlikely,” said Mark Brewer, life sciences research director for finnCap

Mental health and COVID  

The 2020/2021 government ordered shutdowns added additional stress on an already underfunded sector of health care, behavioral health. 

Recently, the Biden administration announced $2.5 billion in funding to states and territories to address the crisis. “We know multiple stressors during the pandemic – isolation, sickness, grief, job loss, food instability and loss of routines – have devastated many Americans and presented unprecedented challenges for behavioral health providers across the nation,” said Acting Assistant Secretary for Mental Health and Substance Use, Tom Coderre.

Recentric currently works with behavioral health tenants in our portfolio, understands the need for expanded services, and anticipates further growth in this sector for our existing tenants and future tenants.

Healthcare is only growing.

As a result of the latest stimulus plans, the Biden administration provided nearly 7 million people without insurance access to free insurance through the Affordable Care Act. 

And as recently as early April, the American Rescue Plan (ARP) expanded eligibility for the Affordable Care Act’s premium subsidies (federal aid to help people pay for insurance plans bought on the individual marketplace). This will undoubtedly expand the size of the healthcare industry as it keeps pace with the new influx of patients newly covered by insurance.

As a private equity real estate company focused exclusively on health care, Recentric is bullish on our business model, and we believe we will see an increase in demand for medical office space due to increased patient numbers as a result of expanded government coverage. 

We are also encouraged that the current quasi-free market health care system, arguably the best in the world despite its flaws, will remain intact throughout the foreseeable future which will provide stability in health care choices for many Americans.

Safe Harbor From the Storm

Safe Harbor From the Storm

tax efficiency and preservation of capital avoid the storm

Given all the uncertainty surrounding the 2020 election and the recent flurry of election lawsuits alleging massive and systemic voter fraud, the official outcome of the Presidency will not truly be known for months. The Senate race is also in limbo due to the Georgia run off that may not be known until January 2021. Clearly, the United States requires major election process overhaul in order to protect our single most important freedom.  Our vote!! 

However, one very real certainty is that taxes are going to increase no matter who eventually wins the White House.  The United States national debt has recently exceeded our gross domestic product. Our Federal government continues to spend beyond its means under the guise of “modern monetary theory.”

The fiscal reality is the federal government does not have the money to pay for its entitlement programs, bailouts and addiction to stimulus spending. By artificially keeping interest rates at all-time lows, the Federal reserve is creating massive bubbles in the stock market and residential real estate.

What can you do to take safe harbor from the coming storm? 

1. Preservation of Capital

Recently, we have been watching a fiscal chart called the Buffet Indicator.  Essentially, this indicator tracks the total US stock market valuation relative to the total GDP of the US. 

According to Current Market Valuation, this indicator is currently 65% higher than the historical average, suggesting that the market is Strongly Overvalued. If this indicator is correct, a major market correction might be coming soon and shifting into a stable asset class such as health care real estate would be recommended. 

Buffet Indicator Value vs Historical Trend

2. Tax Efficiency

Without breaking any laws, lowering your marginal tax rate without lowering your income is not an easy task. 

Health care real estate provides some major tax efficiencies by way of a tax tool called a cost segregation study. This legal accounting method allows the owner of a building to accelerate depreciation on different parts of the building per the IRS tax code. 

We recently highlighted a medical office building acquisition in which we were able to generate a $1 million dollar paper loss and pass through to our investors. 

Preservation of capital and tax efficiency should be front of mind for all investors, especially now.  

The warning signs are out there, you just have to know where to look.  

Recentric Realty Capital

Recentric continues to look for development and acquisition opportunities to meet the growing demand for larger, out-patient medical facilities. This strategy allows us to take advantage of the growing need for these facilities and offer new and exciting opportunities to our current and future investors.