Academic Articles Health Insurance

Health Insurance and Medical Care Utilization

Does health insurance increase utilization of medical services? Economic theory generally predicts that it will. Health insurance decreases the price individuals pay for medical care and thus the equilibrium quantity of medical care used will increase.

A paper by Buchmueller, Grumbach, Kronick and Kahn (“Effect of Health Insurance on Medical Care Utilization…â€?) examines this phenomenon in more detail. The paper is a nice blend reasoning based on both economic theory and empirical evidence.

Adverse Selection: For instance, economic theory predicts that if insurance companies do not have full information regarding the health level of its customers (which is likely) adverse selection will occur. This means that healthy individuals will purchase no (or less generous) health insurance while sicker individuals will purchase (or purchase more generous) health insurance. The authors claim that while this is generally true, it may not hold in the U.S. institutional environment. Most people under 65 receive their health insurance through full-time employment. Since it is less likely that sick people work, some studies (Buchmueller 1995; Stroupe, Kinney and Kniesner 2000; Blumberg and Nicholas 2001; Holahan 2001) find evidence that workers in poorer health are less likely to obtain employer-sponsored coverage.

The Uninsured: A paper by Dubay, Holahan and Cook (Health Affairs 2007) shows that there are 44.6 Americans under 65 [17.5% of this population] who are uninsured. Yet uninsurance does not imply a complete absence of care. “In areas where there is a well-functioning safety net, the lack of insurance will not mean a complete lack of access to care, so the expansion of coverage will result in smaller changes in utilization than in localities where the uninsured have fewer options. In contrast, in many low-income areas, even persons with Medicaid face access problems because many physicians are not willing to accept Medicaid patients (Fossett and Peterson 1989; Fossett et al. 1992). In such areas where care to publicly insured patients is effectively rationed, increases in utilization from expanded coverage may be limited.â€?

Type of Coverage: Due to data limitations, few studies have been able to look at the type of coverage offered to the uninsured. Different expansions of government provided health insurance may lead to different utilization results depending on how generous the insurance plan is. Is the insurance coverage more ‘managed?’ Are there gatekeepers? What specific procedures does the insurance cover? Few studies have answered this question in such a detailed manner.

Supply Side: If the government did decide to provide a more universal type of coverage what would be the impact? Most studies examine the patient demand side and deduce what the patient response would be if they became eligible for government-sponsored or government-subsidized insurance. It is likely, however, that providers will also respond to any changes in the manner in which they are compensated. According to a study of Quebec after Canada, “after universal coverage was established, physicians shifted away from telephone consultations, which were not reimbursed under the new system, toward office visits, which were reimbursed (Enterline et al. 1973, 1975).â€?

The paper goes on to review a number of studies which examine how expanding insurance coverage affected how various groups (i.e.: children and adults) utilize different medical care services (i.e.: outpatient visits, hospitalizations, etc.). One interesting theory which is tested is that health insurance will increase outpatient visits, but because outpatient visits can often catch a disease in its early stages, hospitalizations will decrease. The authors cite a paper by Dafny and Gruber (2000) which finds that “…Medicaid eligibility reduces the rate of avoidable hospitalizations by 3.4% while increasing the overall hospitalization rate.â€?