Physician responses to rising local unemployment rates: Healthcare provision to Medicare and privately insured patients

Abstract

Prior studies suggest that hospital care is countercyclical among Medicare beneficiaries, and if anything, procyclical among the non-elderly. In this paper, we provide the first physician-level analysis of changes in healthcare provision to Medicare and privately insured patients across the business cycle. Using Florida discharge data aggregated to the physician level, we find that as county unemployment rates increase, physicians treat fewer privately insured patients in both inpatient and outpatient settings. In contrast, physicians who are more exposed to income losses during recessions provide more care to Medicare patients as the unemployment rate rises. Further analysis suggests that easing capacity constraints may contribute to this rise in Medicare volume; however, even in areas that are not capacity constrained, care provided to Medicare patients remains countercyclical among physicians with a large share of privately insured patients. This pattern is consistent with demand inducement in response to a negative income shock.

Keywords: Health and recessions; Hospital care; Medicare; Provider-induced demand; Supply-side responses.