Labor Market Conditions and Medicare Utilization and Spending: Evidence from Microdata

Melissa McInerney, College of William and Mary
Jennifer Mellor, College of William and Mary

Several studies report that health outcomes improve and mortality declines when macroeconomic conditions deteriorate (e.g., Ruhm 2000, 2003, 2007; Charles and DeCicca 2008). These patterns could result from the direct effects of unemployment (if individuals who lose their jobs devote more time to health production) or indirect effects (if all persons residing in an area are affected by economic downturns). Using Medicare Current Beneficiary Survey (MCBS) data from 1999 through 2006, we test for indirect effects by examining the relationship between state unemployment rates and individual healthcare utilization among elderly Medicare recipients, a population with low rates of employment whose time and income is much less sensitive to local labor market conditions. We test this relationship using a richer set of utilization measures than prior research, and document evidence consistent with an indirect effect of recessions on utilization observed in inpatient care, outpatient care, and physician office visits.