By Kevan McCormack

National-Investment-CenterPolitics is politics, and business is business, right?  Wrong.  Unfortunately, politics is business!  Right or wrong, that is what this twisted Republic we live in has become.  There is no separation of the public and private sector.  What happens in the public sector has direct and immediate effects in the private sector.  And, since real estate is a necessary part of nearly everything in our society, public or private, paying attention to what happens in politics can help guide you through the turbulence our country is currently weathering.

I spend much of my time involved in a very particular part of real estate: Healthcare and Senior Living.  While these sectors of real estate are not yet a part of the “Four Major Food Groups” of real estate, they continue to play an increasing role in the continuum of real estate product types that everyone in the country will use at some point in his or her life.  So, while it is easy to not care or to believe that you are insulated from the political ramifications of healthcare policy, at some point everyone is going to be personally or professionally affected by healthcare-related legislation.

While attending the National Investment Center (“NIC”) Annual Conference in Chicago, I had the fortune to listen to Tom Scully discuss the “Future of Healthcare” under a potential Obama II vs. Romney Administration.  While Tom was formerly the Administrator of the Centers for Medicare and Medicaid Services from 2001-2003 under President George W. Bush, he offered a very non-partisan view of the pros and cons of what is likely to happen with healthcare-related policy under either administration.

While Mr. Scully believes that the Obama ticket will be very difficult to defeat this year, he noted that it is likely that if the GOP wins the Presidency, it will also control Congress as the House will stay GOP and Senate will be so close that the VP may be the deciding vote in a 50/50 Senate.

Mr. Scully noted that if Obama wins in November, the impending budgetary debate in the summer of 2013 will lead to revenue (i.e. tax) concessions from the GOP in exchange for delaying the Affordable Care Act (“ACA”) healthcare coverage expansions to 2015 / 2016, after which it would be phased in slowly rather than being forced into an already ailing economy.  A move such as this is an implicit admittance by the administration that the so-called “Budget Neutral” ACA was anything but budget neutral and is composed of nothing more than numerical gimmickry.

ACA’s implementation will result in $200 billion more being spent on healthcare by 2017.  If you work in the right sectors of healthcare, this may be seen as a good thing for the healthcare business, but for the masses, this has a negative impact in a country facing already dangerously high deficits.  For Medicaid, commercial insurers, and hospitals, this may be seen as good, but it creates a necessity for Medicare cuts.  ACA will create a more aggressive Center for Medicare & Medicaid Services (“CMS”) regulatory environment that will be tough on Medicare Advantage (“MA”) plans and specialty healthcare providers such as SNF, Long-Term Acute Care Hospitals (“LTACH”), Rehab Hospitals, and Home Health.

If Romney wins, one of two outcomes will prevail.  They will either repeal ACA entirely (predicated in a GOP-controlled Congress) or, at a minimum, delay key ACA provisions for 5-6 years resulting in no Exchanges being formed and saving $200 billion in Medicaid expansion.  A GOP administration will likely move the Medicare age to 67 gradually and delegate Medicaid to state discretion.  The GOP “deficit reduction plan” will focus on healthcare reductions, which account for over 24% of the current $3.6 trillion in federal outlays during 2011.  Skilled Nursing will be a huge target here; however, the GOP plan will result in a friendlier tone from CMS on MA plans. Relations with commercial insurers will improve.  CMS will be a friendlier regulatory environment for hospitals, LTACH’s, Rehab Hospitals and Home Health but will push for Medicare “Fee for Service” limits.

At the end of the day, everyone needs to do their own “calculus”.  While those working in certain sectors of the healthcare industry may find that the pros of ObamaCare and its implementation outweigh the negatives, those of us who do not work in those sectors only have the negatives to look forward to.

What are the negatives?  The number of beneficiaries in this system will increase from 40 million in 2000 to 47 million in 2010, with a projected 80 million in 2030 (maybe good in theory, maybe bad).  However, the number of workers supporting each beneficiary decreased from 4 in 2000 to 3.4 in 2010 and a projected 2.3 in 2030.

What does this mean?  Workers will pay increasingly more taxes for a system providing a higher quantity of lower quality services more heavily regulated and delegated by a government bureaucracy.

Does this seem like a race to mediocrity?  In 2014, when a bulk of ObamaCare is scheduled to go into effect, the U.S. will implement the largest entitlement expansion in history.  That means 20 million more people on Medicaid (65 million currently) and 17 million more people on “subsidized health” via Exchanges for those up to 400% of the poverty level (i.e. $94,000 for a family of 4.  This incorporates more than 62% of America!).

At the end of the day, ACA represents a permanent shift of Federal Government spending from 20% historically to 25% of GDP.  Is this a sustainable business plan?  Does it matter if we all have corporate pension funds providing us with healthcare during retirement if the company raids the pension fund and then goes bankrupt?  We can all fool ourselves into feeling nice and secure that we have national healthcare, but if the business plan can never work in the long run, what do we really have?  A few years of feeling secure and proud of ourselves…that is about it!

For the last decade, Metropolitan Capital has kept a steady hand on the pulse of the healthcare industry.  If you are a healthcare or senior living developer, it helps to have an experienced financier equally versed in the rapidly changing healthcare legislation as your advocate in the capital markets.