The Expansionary and Contractionary Supply-Side Effects of Health Insurance

Abstract

We examine how health insurance expansions affect the entry and location decisions of health care clinics. Exploiting county-level changes in insurance coverage following the Affordable Care Act and 1,721 retail clinic entries and exits, we find that local increases in insurance coverage do not lead to growth in the concentration of clinics on average using two-way fixed effects and instrumental variable designs. However, this null effect masks important heterogeneity by insurance type. Growth in private insurance leads to large growth in clinic entry, whereas clinic penetration is dampened by increases in Medicaid coverage. Consistent with a model in which firms face demand from both markets with administered and market-based pricing, we find that the positive (negative) supply-side effects of private insurance (Medicaid coverage) are concentrated in states with low provider reimbursements under Medicaid. We further show that similar location patterns are observed among other types of health care clinics, including urgent care centers. While it has long been accepted that reductions in the prices paid by consumers following insurance expansions should lead the supply side to expand to meet increased demand (Arrow 1963), our results demonstrate that whether health insurance expansions cause the supply side to expand or contract further depends on how the prices received by providers are affected.