Effects of managed care market penetration on physicians’ labor supply decisions

Abstract

This paper examines data from a 1991 nationally representative survey of physicians under the age of 45 to evaluate the effects of HMO enrollment growth and the changing demographic composition of the physician work force on physicians’ choice of practice setting (employee versus self-employment) and annual hours of work. Our results indicate that HMO market penetration has a significant negative effect on the probability of self-employment for all physicians and the sub-samples of both specialists and generalists. Furthermore, increasing HMO market share has a significant negative effect on annual hours of work of all physicians and generalists but has only negligible effects on the work effort of specialists. Using these parameter estimates, we predict that a 100% increase in HMO market share decreases the probability of being self-employed by 23.5% for all physicians, 28% for specialists, and 21% among generalists. Controlling for self-employment, a doubling of the percentage of the population enrolled in HMOs reduces the annual hours of work by 4.9% for all physicians and by 6.8% among generalists. In contrast, HMO market penetration has only trivial effects on the work effort of specialists. We also find that the gender gap in hours between male and female physicians still persists. This gap is 17.7 to 19.6% for female physicians with young children, but is much smaller—5.5 to 8.5%—for women without young children.