The Expansionary and Contractionary Supply-Side Effects of Health Insurance

Abstract

We examine how health insurance expansions influence the entry and location decisions of health care providers. While it is generally expected that reductions in consumer prices following insurance expansions will prompt supply-side growth to meet increased demand (Arrow, 1963), we demonstrate both theoretically and empirically that expansions of insurance with low, regulated provider reimbursements (e.g., Medicaid) can instead lead the supply side to contract. Additionally, we show that expansions of insurance with high, market-based prices (e.g., private coverage) can reduce acceptance of public coverage even as they drive growth in the overall concentration of providers.