The Impact of Provider Payments on Health Care Utilization of Low-Income Individuals: Evidence from Medicare and Medicaid

Provider payments are the key determinant of insurance generosity within many health insurance programs covering low-income populations. This paper analyzes the effects of a large, federally-mandated provider payment increase for primary care services provided to low-income elderly and disabled individuals. Drawing upon comprehensive administrative payment and utilization data, we leverage variation across beneficiaries and across providers in the policy-induced payment increase in difference-in-differences and triple differences research designs. The estimates indicate that the provider payment reform led to a 6.3% increase in the targeted services provided to eligible beneficiaries, indicating an implied payment elasticity of 1.2. The provider payment reform also decreased the fraction of low-income beneficiaries with no primary care visit in a year by 9%. Heterogeneity analysis indicates that the payment increase led to an expansion of utilization for many subgroups, with somewhat larger effects among beneficiaries who are younger, are white, and live in areas with many primary care providers per capita.