Ask the Expert: Shirley Svorny on the Future for Healthcare Professionals

Stephani Pease, a sophomore at UNM, asks:

"I am currently a sophomore in college and I am planning on either going to medical school or dental school. How does the healthcare bill affect my future? Most students aspiring to go to medical school take out loans for the high cost of tuition assuming that when they get out of school they will be making enough money to pay them off. No one would accumulate $200,000 of debt in medical school if they were only going to make $50,000 a year. I certainly won't.

It is not just the fact that this bill will increase taxes on those making a joint income of $250,000+, but what affects does it have on the income of workers in the medical field?

Say I graduate from medical or dental school in 2016 or 2017, what affects does this new legislation have on students like me?"

Shirley Svorny, professor of economics at California State University, Northridge, and an adjunct scholar at the Cato Institute, answers:

This is a good question. In the mid-1960s, when Medicare and Medicaid were put in place, the increased demand for physician services led policy makers to drop immigration restrictions on foreign trained physicians. Also, state legislators--faced with a huge Medicaid spending liability--took steps to expand the scope of practice of non-physician clinicians. Despite opposition from physician groups, this was embraced as a way to increase access and keep costs from rising. So you can see there is a precedent for policy changes to influence the regulation of the health care workforce and its training.

I imagine something similar will happen in this case. Before the legislation was passed, concerns about a looming physician shortage due to retirements led the American Association of Medical Colleges to push for enrollment increases in LCME-accredited physician training programs (http://www.aamc.org/workforce/start.htm). But the AAMC says the steps taken to increase the physician supply won't be enough.

My guess is that the pressure created by increased state and federal responsibilities for health care expenditures will push legislatures to further increase the role of non-physician clinicians so that concerns about a physician shortage are premature. The implications for medical school students may be that they will see more emphasis in their training on how to work as part of professional teams in the provision of patient care. Research suggests health care professionals and patients like the team approach. For more on non-physician clinicians and state regulation of clinicians in general, see my paper: http://www.cato.org/pubs/pas/pa-621.pdf..

Initially, the new legislation is more about raising money through taxes than increasing federal spending. But as federal financial liabilities under the new legislation increase in 2014 and beyond, it may be increasingly difficult for Congress to avoid rationing and price controls, including cuts to physician reimbursement under Medicare. This would normally have a negative effect on physician earnings. However, with the expansion in insurance coverage and the retirement of baby boom physicians, I expect average physician salaries to rise. At the same time, I expect a segmentation of the physician market with some physicians handling Medicare patients and others backing out of that market, as has already happened to some extent with Medicaid patients. So while average salaries may rise, I think we'll see a wider variance in physician salaries as the new legislation is implemented. 

Also relevant to newly minted physicians, government agencies may try to direct Medicare and Medicaid patients to large scale providers who directly employ physicians (as in Kaiser Permanente). Direct employment of physicians reduces so-called defensive medicine and other excess spending on services. [The higher cost of Medicare Advantage (Medicare coverage provided by HMOs) makes it seem as if I have this wrong, but Medicare Advantage was purposely over funded to encourage the initial voluntary participation of reluctant HMOs and seniors.] 

The AAMC has pointed out that the expansion of medical school enrollment will cause a shortage of residencies: http://www.aamc.org/workforce/residents.htm. This may make graduate medical education more competitive when students graduate from medical school, but with the increased demand for health care, it seems likely a solution will be worked out. AAMC called for this to be included in the legislation that was just passed, but I can't find anything that says it was.

Certainly the U.S. is accumulating debt and it is just a matter of time before taxes rise. This applies to the states as well which, over time, will be responsible for the costs of the Medicaid expansion. So physicians (and everyone else who earns a substantial income) are likely to see higher tax rates. States with no state income tax, like Florida and Nevada, have always been a magnet for retirees. I expect those populations to increase as wealthy seniors try to avoid taxes.   

My advice for new physicians with debt? Lock in your loans at current low rates. Of course, if I really knew what was going to happen to interest rates, I'd be rich, so follow this advice at your own peril.