New Study Shows Medicaid Expansion Reduces Household Debt

Medicaid expansion has led to declines in the rate of uninsurance, improved access to care for enrollees, and financial savings for states. A new study points to an additional benefit to newly eligible Medicaid enrollees: lowering debt.

Prior studies indicate that Medicaid reduces medical debt, but a new study examined the impact of Medicaid expansion on a range of measures of financial well-being. Researchers from the Federal Reserve Bank of Chicago, the University of Illinois, and the University of Michigan published a working paper for the National Bureau of Economic Research (NBER), The Effect of the Patient Protection and Affordable Care Act Medicaid Expansions on Financial Well-Being. Using credit reports of low-income people across the country, researchers examined six financial indicators: total debt, debt past due, credit card balance, credit card debt past due, the number of non-medical bills sent to collections, and the total non-medical balance outstanding in collections.

The study found that Medicaid provides families with additional financial protections. In particular, Medicaid expansion significantly reduced the number of unpaid bills and the amount of debt sent to third parties for collection. Conservatively, Medicaid eligibility expansions lowered non-medical debt by $600 to $1,000 for the previously uninsured population, according to the authors.

Medicaid offers affordable health coverage to the newly eligible Medicaid population. States may not charge premiums to Medicaid enrollees with incomes below 150% of the Federal Poverty Level (FPL) without a waiver and allowable copayments are restricted to “nominal” charges. Thanks to these strong financial protections, research indicates that Medicaid reduces personal bankruptcies, decreases medical bills, increases household expenditures, and reduces the number of people in poverty. Low-income households with Medicaid coverage spend about one-fifth less on health care expenses than low-income households without Medicaid. Half of uninsured adults (53%) had trouble paying or were unable to pay their medical debt, compared to 18% of adults with Medicaid.

Health insurance, and particularly Medicaid coverage, protects families from medical debt. Thanks to this new research, we now know that Medicaid coverage also protects families from debt. In general, access to affordable health coverage frees up a family’s resources to be spent elsewhere, including basic goods and services like groceries, rent, education, retirement savings, etc. Medicaid expansion has improved the well-being of families across the country. Thus, as the researchers point out, Medicaid expansion has important financial impacts beyond health care use and leads to greater financial security for low-income families.