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Evidence of regional variation in health care utilization has been well-documented over the past 40 years. Yet uncertainty persists about whether this variation is primarily the result of supply-side or demand-side forces, and the difference matters for both theory and policy. In this article, we provide new evidence as to the cause of geographic variation in health care utilization. We do so by examining changes in health care use by the near-elderly as they transition from being uninsured into Medicare. Results provide support for 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 36% and the probability of having more than five doctor visits by 25% relative to similar individuals in below-median spending regions.

A Test of Supply-side Explanations of Geographic Variation in Health Care Use