Professor of Strategy; Herman Smith Research Professor in Hospital and Health Services Management; Director of Healthcare at Kellogg
Assuming the Supreme Court does not strike down some or all of its provisions, the Patient Protection and Affordable Care Act (PPACA) will, by 2014, usher some 32 million Americans into the ranks of those with health insurance. The intensity of the political debate surrounding this act is a testament to its far-reaching effects.
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Economists are only just starting to apply their tools to many of the changes in policy that will occur in the wake of the PPACA. For example, Medicaid, which traditionally aids the poor and disabled, will cover more Americans. Health insurance is not like other public assistance programs, such as welfare or food stamps, that are direct grants to individuals. In the market for healthcare, government can set the insurance level, but providers must decide whether and in what way they will treat newly insured patients.
Craig Garthwaite, an assistant professor of management and strategy at the Kellogg School of Management, thought that by studying previous expansions of federal and state health insurance programs he could get a handle on how the PPACA would affect the availability of doctors after the expansion of Medicaid. The supply of care is a critical issue, given projected shortages of medical professionals in the coming decades.
Starting with a model of how doctors should behave under an expansion of federal health insurance, and then moving on to real-world data, Garthwaite discovered that doctors respond to the “crowding out” of private health insurance by working less, despite their increased adoption of federal health insurance. It is a counterintuitive result that illustrates the trickiness of the intersection between public health insurance and private-sector healthcare providers in the United States.
Garthwaite explains, “We decide the optimal level of health insurance and then we hope to take this to the market and get care. This requires doctors and hospitals to provide the care. So the interaction of this program with the private market determines if people can ultimately get care from this expansion of health insurance.”
The most recent significant expansion of national health insurance was the creation of the Children’s Health Insurance Program, commonly known as CHIP, which provides matching funds to states in order to cover children in families that do not qualify for Medicaid, but still have modest incomes. CHIP provides insurance to more than 5 million kids.
According to some studies, up to 60 percent of the children on CHIP previously had access to some form of private health insurance. This switch to a lower-cost federal program is called “crowd out,” and something similar will likely happen as the number of enrollees in federal health insurance programs increases under the PPACA.
The federal program pays doctors significantly less for their services than private insurance, and yet when it went into effect, the percentage of doctors accepting CHIP went up. The logical explanation is that they had no choice: Enough of their lowest-paying patients had switched to CHIP that it was still profitable to accept some of them. This probably lowered doctors’ average income and caused them to work 5 percent fewer hours per week, on average.
A Common Tradeoff
This is the “labor/leisure” tradeoff that is common to all paid labor. As wages go down, the value of an hour at work goes down relative to the value of an hour of leisure, leading workers to naturally choose to work fewer hours. In many cases, this effect outweighs the incentive to increase the number of hours worked because of lost income.
The way doctors have reduced their hours is by spending less time with each patient. Specifically, the probability that a patient spends fewer than 10 minutes with a doctor went up after the rollout of CHIP (then called the State Children’s Health Insurance Program) in 1997. It appears that other medical professionals, probably physician assistants and nurse practitioners, are filling the breach, taking histories and performing other functions on which doctors used to spend their time.
“As we are making it less attractive to be a doctor, that’s going to affect the quality of the supply of doctors coming into the system.”
A triage system in which patients see doctors only to the extent that it is absolutely necessary “might not be a bad way to organize healthcare going forward, but it’s a conversation we should have,” Garthwaite says. “This might be an efficient way to lower healthcare spending, by using people for the tasks we need them for most.”
While doctors appear to have adapted to the lower fees associated with an uptick in patients in a federal health insurance program, the results of that adaptation—shorter visits and potentially lower salaries for doctors overall—could have long-term implications that policymakers might want to consider.
“As we are making it less attractive to be a doctor, that’s going to affect the quality of the supply of doctors coming into the system,” Garthwaite says. While the number of doctors is not likely to fall—there are only so many medical schools, and they have long been the factor limiting how many doctors are produced—it could mean smart students will choose a profession other than medicine.
Garthwaite’s study illustrates that the compromises inherent in expanding healthcare coverage are more subtle than the rhetoric surrounding what is colloquially known as “Obamacare.” It also demonstrates the adaptability of healthcare professionals faced with increasing demands on their time.
“With PPACA, you’re going to put 32 million people into the healthcare system,” Garthwaite says. “It’s hard to imagine we have that much slack in the system now.”
Related reading on Kellogg Insight
Garthwaite, Craig. 2012. “The Doctor Might See You Now: Supply Side Effects of Public Health Insurance Expansions.” American Economic Journal: Economic Policy, 4(3): 190–215.
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