Recessions and Healthcare Spending

In “State Unemployment In Recessions During 1991-2009 Was Linked to Faster Growth in Medicare Spending,” economists Melissa McInerney and Jennifer M. Mellor from the College of William and Mary’s Schroeder Center for Health Policy examine the relationship between unemployment and healthcare expenditures over a 20-year period. This new study appears in the November 2012 issue of Health Affairs.

McInerney and Mellor show evidence that higher unemployment rates across states and over time are associated with faster Medicare spending growth and slower private-payer spending growth. A one percentage point rise in the unemployment rate increases Medicare spending growth by 8 to 12 percent.

Increasing unemployment rates also seemed to contribute to more Medicare spending per capita, and more utilization of healthcare services during this time period. One possible explanation for the observed increase in healthcare utilization by Medicare patients is that hospitals have more capacity to treat Medicare patients as hospital utilization slows among privately insured individuals. Another possible explanation for an increase in healthcare utilization by Medicare enrollees is that hospitals, made financially worse off by a recession’s effect on their privately insured patients, may increase the provision of services among the Medicare population. Evidence of this type of “demand inducement” suggests a need for alternate forms of provider payment systems to better encourage Medicare cost containment.

Read the entire study published in Health Affairs.