The effect of the affordable care act Medicaid expansions on financial wellbeing☆
Introduction
In 2010, President Barack Obama signed the Patient Protection and Affordable Care Act (ACA) into law, which included a provision to expand Medicaid eligibility to low-income adults, many of whom were previously ineligible. A major motivation for this expansion was to provide financial security to individuals if they experience a sudden deterioration in their health and cannot afford to pay for their medical expenses.
Indeed, the financial consequences of not having health insurance can be severe for individuals who become seriously ill or injured. According to data from the 2012 Medical Expenditure Panel Survey (MEPS), the annual cost of inpatient care for a person aged 18 to 64 who was hospitalized was approximately $15,000, and the annual cost of all types of care for that person was $25,000. Studies using survey data suggest that the uninsured often have difficulty paying medical expenses, become delinquent on their medical and non-medical bills, and are more likely to be contacted by collection agencies.1 Dobkin et al. (2017) find that uninsured individuals who become hospitalized experience a host of financial setbacks over the next four years including reduced access to credit, a 170% increase in unpaid medical bills, and a more than doubling in the likelihood of filing for bankruptcy.
These statistics highlight how the Medicaid expansions under the ACA could play an important role in providing low-income individuals with financial protection by improving their ability to pay their medical expenses. Additionally, expanded health care coverage may also have indirect effects on financial wellbeing. Access to health insurance and a reduction in medical expenses has the potential to improve access to credit markets, increase savings, and facilitate consumption of other goods and services. These other channels can potentially have salutary effects on the wellbeing of low-income individuals.2
Despite the potentially important role that publicly provided health insurance plays in the financial wellbeing of low-income individuals, only three studies have evaluated the role of Medicaid on consumer financial wellbeing. Gross and Notowidigdo (2011) examined the effect of Medicaid eligibility expansions in the 1990s, which were mostly for children, on bankruptcy. They found that increasing Medicaid eligibility by 10 percentage points reduced personal bankruptcy by about 8%. The Oregon Health Insurance Experiment (Baicker et al., 2013; Finkelstein et al., 2012) found that Medicaid coverage of low-income adults in Oregon reduced the likelihood of borrowing money or skipping bills to pay for medical care by 44% and reduced the probability of having a medical collection by 23%. Finally, a recent study by Brevoort et al. (2017) examined the effect of the ACA Medicaid expansions on new medical collections. Estimates from this study indicate that the expansions substantially reduced the incidence of new medical debt in expansionary states relative to controls. Other studies have evaluated the effects of other types of health insurance coverage on financial outcomes and have also documented substantial improvements in financial wellbeing (Barcellos and Jacobson, 2015; Mazumder and Miller, 2016; Dobkin et al., 2017).
We extend this literature by evaluating the effect of the expansion of Medicaid under the ACA to low-income adults on consumer financial wellbeing. Although originally intended to apply to all states, in 2012, the U.S. Supreme Court decision in the National Federation of Independent Business v. Sebelius case made the Medicaid expansions optional for states. As of the end of 2015, 29 states and the District of Columbia had chosen to expand Medicaid coverage (at least in some form) and 21 states had opted not to expand Medicaid coverage.3 Rates of health insurance coverage have improved substantially more in the states that offer expanded Medicaid coverage than in those that do not (Black and Cohen, 2015; Kaestner et al., 2017; Sommers, 2014; Wherry and Miller, 2016; Miller and Wherry, 2017), and total Medicaid enrollment in these states increased by 12.3 million between 2013 and 2015 (Centers for Medicare and Medicaid Services, 2015). We exploit the variation in Medicaid eligibility and coverage induced by these state-level policy choices to estimate the effect of the Medicaid expansions on individual financial outcomes. We use the synthetic control approach (Abadie et al., 2010) to address concerns about the potential non-randomness of states' decisions to expand Medicaid.
As far as we are aware, ours is the first national study that evaluates how public health insurance coverage for non-elderly adults affects financial wellbeing. We use data from a large, nationally-representative sample of credit reports, the Federal Reserve Bank of New York Consumer Credit Panel/Equifax (CCP) dataset to conduct our analysis. The CCP data contain timely information on a random sample of the credit reports of approximately 38 million adults in the United States each quarter (covering about 17% of the adult population) and provide many indicators of financial wellbeing. We focus on a few, broad measures of financial wellbeing where the effects of the 2014 Medicaid expansion could potentially be detected during our sample period. Specifically, we examine credit score, total debt, total debt past due, credit card debt, credit card debt past due, the number of bills sent to collections, the total balance outstanding in collections, and bankruptcy.
Our main finding is that Medicaid expansions that began in 2014 significantly reduced the number of unpaid bills and the amount of debt sent to third-party collection agencies among people living in zip codes that are most likely affected by the expansions. Our baseline intention-to-treat (ITT) estimates indicate that the Medicaid expansions are associated with a decrease in the amount of unpaid balances in collections of between $65 and $88. This effect is an average over the entire sample and includes many individuals who did not obtain Medicaid insurance coverage through the expansion. Rescaling this estimate based on the fraction of the target population who were likely to have obtained insurance coverage yields estimates of the effect of obtaining Medicaid (i.e., treatment on the treated) on collection balances of approximately $1140. These estimates indicate a substantial improvement in financial well-being for individuals who gained coverage. We also found some suggestive evidence that the Medicaid expansion reduced the total amount of consumer debt. While we do not find evidence of a reduction in other type of delinquencies, the improvement in financial well-being may provide benefits beyond the direct benefit of eliminating medical debt, which is an interesting area for future study. The reduction in unpaid bills in collection also implies that the benefits of expanding Medicaid likely include hospitals and creditors that serve the low-income population.
Section snippets
Conceptual framework
Medicaid provides health insurance coverage at no, or very low, cost to the enrollee. Given the low income of individuals who became eligible for Medicaid through the ACA (<138% of federal poverty), even relatively minor, unexpected medical expenses can represent a substantial fraction of their total income, and more serious illness may be catastrophic financially for them. Consequently, we hypothesize that the financial protection provided by Medicaid for low-income individuals should largely
American Community Survey
We use data from the 2010–2015 American Community Survey (ACS) to estimate the impact of the Medicaid expansions on health insurance coverage. This analysis constitutes the “first stage” of our analysis. Although other studies have used these data to show that the Medicaid expansions increased insurance coverage (e.g., Buchmueller et al., 2016; Kaestner et al., 2017), we replicate their results using the synthetic control method so that the first stage is estimated in a fashion consistent with
Selecting weights
The synthetic control approach first requires the selection of weights to construct the comparison group. The weights are chosen to minimize differences in pre-2014 outcomes and covariates between states that did and did not expand Medicaid. We match on each pre-2014 value of the dependent variable and covariates; an alternative weighting method that matches on the pre-2014 average and 2013 values of the dependent variable, and each pre-2014 value of covariates is reported in the Appendix.18
Conclusion
The financial protection provided by health insurance is arguably its most important function. This is particularly true in the case of Medicaid because of the relatively high prevalence of disease among low-income individuals and the substantial financial burden that illness imposes on those who become seriously ill or injured. Indeed, a major justification for the Affordable Care Act was to provide such financial protection. In this study, we examined whether the recent expansion of Medicaid
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This work was supported by the National Institutes of Health [1R01HD081129-01]. The views expressed here do not represent the views of the Federal Reserve Bank of Chicago or the Federal Reserve System. We thank Sharada Dharmasankar for her excellent research assistance. We also thank the editor and four referees for helpful comments.