Do Supply-Side Forces Explain Geographic Variation in Health Care Use?

Regional variation in health care utilization has been well-documented, yet uncertainty persists about whether this variation is primarily the result of supply-side or demand-side forces. We provide new evidence on this issue by examining changes in health care use for the near-elderly as they transition from being uninsured into Medicare. Results support a causal, supply-side explanation of regional variation. Estimates indicate that gaining Medicare coverage in above-median spending regions increases the probability of at least one hospital visit by 40% and the probability of having more than five doctor visits by 26% relative to similar individuals in below-median spending regions.