The Effect of Mandated Health Insurance on Physician Reimbursement: Evidence for the Massachusetts Health Reform

In 2006, Massachusetts passed a health care reform which required individuals to purchase health insurance and provided subsidized health insurance to the poor. The reform greatly increased the proportion of the state population that was insured.  The sudden increase in the patient population has a theoretically ambiguous effect on payment.  On one hand a sudden growth in demand for services would put upward pressure on prices; on the other hand the expansion of the patient pool likely brought in healthier patients, reducing distortions due to adverse selection.  In this study we use the largest commercial claims data set in the United States (FAIR Health) to analyze the effect of the increase in the number of insured on physician reimbursement.  We find that reimbursement for well-infant visits rose by approximately 4 percent during the reform implementation period, but the increase did not persist. Reimbursement for well-adult visits and appendectomies remained unchanged. Triple difference estimates using appendectomies (for which demand is extremely inelastic) as an additional control group show a 2 percent rise in well-infant visit reimbursement during the implementation period and no effect afterwards.  Estimates imply a temporary increase in the cost of health services with relatively elastic demand following a large scale insurance mandate.