The Supply-Side Economics of Reform

IHPI member Tom Buchmueller views healthcare reform through the familiar prism of an economist: supply and demand. In collaboration with other IHPI members, he is observing healthcare reform from both sides of the equation.

Buchmueller is a professor of Risk Management, Insurance, Business Economics and Public Policy, and Chair of Business Economics at the U-M Stephen M. Ross School of Business. He holds a joint appointment in the Department of Health Management and Policy in the U-M School of Public Health. In 2011-2012 he served as Senior Health Economist for the President’s Council of Economic Advisors.

As he explains, both the Affordable Care Act and the Healthy Michigan Medicaid expansion are demand-side reforms, intended to put more people in a position to consume (demand) services. He notes that with the expansion of coverage, stakeholders now have a greater incentive to get serious about controlling costs — the supply side.

One major supply-side concern is whether the influx of newly-insured patients will overwhelm providers, impacting the availability, cost and quality of care. He recently led a study find out how providers react when more patients are covered by insurance. Since data from the newly-enacted reforms is not yet available, Buchmueller identified a useful surrogate for his study: dental care.

He looked at data from states that added a dental benefit to adult Medicaid coverage to see how the corresponding increase in the number of patients (the demand side) impacted the care provided by dentists (the supply side). The study revealed that with expanded coverage, more dentists accepted Medicaid patients without decreasing the number of appointment slots available to patients with private insurance. While the volume of care delivered increased, both patient wait times and the hours dentists worked increased only moderately, because dentists relied more heavily on the support of hygienists.

For health policy researchers, this study illustrates the value of looking to both at both the provider (supply) and patient (demand) sides of the equation to assess the impact of reform.

For primary care providers, the experience of their dental colleagues may hold an important lesson in how to handle additional patient volume without compromising the quality of care.


Read an abstract of Buchmueller's paper →