Economic Factors

Reasons why economic growth might increase physician requirements:

• Theory. Like most goods and services, healthcare is considered a “normal” good where individuals consume larger amounts as their ability to pay rises. At the household level, increased income allows individuals greater opportunities to obtain medical insurance and afford copays and deductibles. At the national level, economic growth allows governments and employers to expand and provide more generous medical insurance coverage.
  
• Empirical correlation. Time series and cross-sectional analyses using States and countries ^[13] as the unit of analysis find a positive correlation between the number of physicians per capita (a supply measure used as a proxy for demand) and economic wellbeing (measured as income per capita or GDP per capita). Cooper et al. operate on the assumption that historical rates of physicians per capita reflect per capita demand for physician services and estimate the relationship between physicians per capita and GDP per capita using annual data from 1929 to 2000. The authors conclude that each 10 percent increase in GDP per capita results in a 7.5 percent increase in demand for physician services (i.e., an income elasticity of 0.75). This income elasticity estimate is similar to that obtained by Cookson and Reilly (1994) and Koenig et al. (2003); however, all of these studies faced significant data limitations. Other researchers have questioned Cooper et al.’s approach, assumptions, and conclusions (e.g., Barer, 2002; Grumbach, 2002; Reinhardt, 2002; Weiner, 2002).

We conducted preliminary analyses using cross-sectional data for States and countries and found income elasticity estimates approximately half the size of Cooper et al.’s estimates. This finding is consistent with an income elasticity estimate of 0.31 by Koenig et al. (2003) when they examined the relationship between income per capita and expenditures for physician services. The standard errors of our estimates are large, however.

Reasons why economic growth might fail to increase physician requirements:

• Increased productivity. Real per capita economic growth occurs through increased productivity. If physicians become more productive over time, their increased productivity will partially offset any increase in demand for physician services due to economic growth. If, for example, as Cooper et al. estimate, the income elasticity of demand for physician services is 0.75, then an increase in physician productivity that is at least 75 percent of the national average increase in productivity would exactly offset any effect of economic growth on demand for services, thus resulting in no change in physician requirements per capita.
  
• Improved health. Economic growth allows individuals and communities to live healthier lives. Examples include improved diet, improved access to preventive medicine, and increased support for public health initiatives that might, in turn, reduce physician requirements.
  
• Counter-cyclical insurance patterns. One explanation for a positive, causal correlation between economic wellbeing and physician requirements is that economic growth allows governments and employers to expand insurance coverage. Holahan and Pohl (2002) find, however, that changes in GDP per capita in the United States during the period 1994 to 2000 results in little change in the overall number of insured persons. Although downturns in economic activity result in a decline in number of persons insured under private plans, economic downturns result in an increased number of households eligible for Medicaid.

The relationship between economic wellbeing and healthcare utilization is likely non-linear, with the correlation becoming weaker at higher income levels as a saturation point is reached. That individuals with greater income will respond by purchasing more routine physician services if they are already well insured is unlikely. Thus, any relationship between economic wellbeing and demand for physician services is likely to be stronger for specialist services than for primary care services.

In summary, additional empirical research is required to estimate the long-term relationship between economic growth and physician requirements. This issue also raises numerous political questions regarding whether projections of the adequacy of physician supply should incorporate patients’ increased appetite for a more expansive healthcare system as the Nation becomes wealthier. For comparison, we project future requirements using Cooper et al.’s assumption of a 0.75 elasticity and the assumption of annual 2 percent growth in real per capita GDP based on Congressional Budget Office (CBO) projections.