Proposals to create a national health care plan such as “Medicare for All” rely heavily on reducing the prices that insurers pay for health care. These changes affect physicians’ short-run incentives for care provision and may also change health care providers’ incentives to invest in capacity, thereby influencing the availability of care in the long term. We provide evidence on these responses using a major Medicare payment change combined with survey data on physicians’ time use. We find evidence that physicians increase their time spent on capacity building when remuneration increases, and that they are subsequently more willing to accept new patients – especially those who may be the residual claimants on marginal capacity. These forces imply that short-run supply curves likely differ from long-run supply curves. Policymakers need to account for how major changes to payment incentives would influence the investments that determine health system capacity.

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BFI Working Paper Nov 19, 2020

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Topics:  Health care