High-Deductible Health Plans Are Making Healthcare Cyclical

The U.S. healthcare system is built around nonprofit hospitals. These institutions, which make up the vast majority of providers, operate under a clear mandate: in exchange for tax-exempt status, they are expected to deliver community benefits and provide a stable source of care. Recently, that arrangement has come under pressure, as policymakers and researchers increasingly question whether nonprofit hospitals are giving enough back. Our new working paper argues that part of the answer lies in the long-lasting shift in the health insurance market.

For decades, healthcare has been viewed as a rare exception to the business cycle. People get sick regardless of whether the economy is booming or in recession, and hospitals, especially nonprofit ones, are expected to provide steady, mission-driven care insulated from financial shocks.

That belief, however, is becoming less valid. A major reason is the growing popularity of high-deductible health plans. We start with a simple time-series observation. In the early 2010s, just over 10 percent of workers with employer-sponsored insurance were enrolled in these plans. That share has since roughly tripled, reaching about 35 percent in recent years. Over the same period, employers have shifted workers into plans that require patients to pay thousands of dollars out of pocket before coverage begins. These higher deductibles are changing how patients use healthcare and, in turn, how hospitals operate.

When patients face large out-of-pocket costs, healthcare demand becomes more sensitive to income. In good times, patients can afford care and utilization remains stable. In downturns, they delay or forgo treatment. We show that, as high-deductible plans have spread, hospital revenues have begun to move more closely with local economic conditions, rising with income and falling when it declines. Healthcare, in other words, is becoming cyclical.

This shift is visible even in simple comparisons. Consider two otherwise similar hospitals located in different counties. In both places, local household income rises by the same amount, whether through higher wages or gains in the stock market. In the past, we would expect hospital revenues and cash flows to respond only modestly, since healthcare demand is not highly sensitive to short-term income fluctuations. Today, the response depends crucially on insurance design. Hospitals in areas with a higher share of high-deductible enrollees see much larger increases in revenue and profitability when local incomes rise. In other words, identical economic shocks now translate into very different financial outcomes, depending on how exposed patients are to out-of-pocket costs.

The pattern becomes even clearer following unexpected shocks. The collapse in oil prices between 2014 and 2016 led to large and persistent income losses in oil-dependent regions, while leaving other areas relatively unaffected. Using this setting, we compare hospitals that were similar before the shock but differed in the share of patients enrolled in high-deductible plans. We find that hospitals in high-deductible areas experienced significantly larger declines in revenue and net income. Comparing the 75th and 25th percentiles, those in high-exposure markets lost nearly $3 million more in annual net income, roughly 15 percent of the average.

The mechanism operates through patient behavior. In oil-reliant counties, workers enrolled in high-deductible plans reduced utilization sharply, delaying or avoiding care. Patients with more comprehensive insurance, despite experiencing similar income losses, showed little change. As a result, hospitals serving more high-deductible patients saw a disproportionate drop in demand, and their financial performance deteriorated accordingly.

Hospitals do not simply absorb this increased exposure. As revenues become more sensitive to local economic conditions, managers adjust in anticipation of greater volatility. We show that hospitals facing higher shares of high-deductible patients systematically reduce staffing, investment, and uncompensated care over time. This is best understood as precautionary hedging. When cash flows become more procyclical, hospitals face greater uncertainty about future revenues, even without a realized downturn. In response, managers operate more conservatively, limiting expenditures that are difficult to reverse. These adjustments affect core operational choices, from hiring to capital investment to the provision of community benefits. In this sense, the shift toward high-deductible plans alters not only how hospitals perform during downturns, but how they operate in normal times.

Perhaps the most striking result is how these responses differ across ownership types. One might expect nonprofit hospitals, given their mission, to be less responsive to these changes. Moreover, because of their payer mix, nonprofits rely more on government reimbursements and should face less exposure to income fluctuations than for-profit hospitals. We find the opposite. Nonprofit hospitals adjust more aggressively than for-profit ones. This is puzzling: the institutions with less exposure appear to respond more strongly.

The difference is not about objectives, but about constraints. For-profit hospitals are more likely to belong to large systems with broader geographic reach and internal capital markets. They can smooth fluctuations across locations and over time. Nonprofit hospitals tend to be more locally concentrated and have more limited financial flexibility. As a result, when revenue becomes more volatile, they rely more heavily on internal adjustments.

This result has clear policy implications. If nonprofit hospitals are expected to provide stable, mission-driven care, then the way they are subsidized should reflect that goal. Support should be countercyclical, providing resources when financial pressure is greatest. Tax exemption, however, works in the opposite direction. It delivers the largest benefits when hospitals are profitable, but offers little support when they are under financial strain.

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Kimberly Cornaggia is a Professor of Finance (Louis R. & Virginia A. Benzak Professor) at the Smeal College of Business, Pennsylvania State University.

Xuelin Li is an Assistant Professor of Business at Columbia Business School.

Zihan Ye is an Assistant Professor of Finance at the University of Tennessee, Haslam College of Business.

This blog is based on a paper presented at the 2026 Corporate Governance Symposium and John L. Weinberg/IRRCi Research Paper Award Competition on 6th March 2026. Visit the event page to explore more conference-related blogs.

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