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Economic
Factors
Recently, Cooper et al. (2002) started another
round of discussions regarding the adequacy of the future
supply of physicians arguing that economic growth is the
major determinant of growth in per capita demand for physician
services and that continued economic growth will contribute
to a significant shortage of physicians—and in particular
specialists—over the next decade. Historically, economic
growth per se has not been a component of the PRM, although
the PRM models trends in insurance patterns that arguably
capture some of the historical relationship between economic
growth and demand for healthcare services. Below, we consider
some arguments for and against including economic growth
as a determinant of demand in the PRM.
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. |