A new study finds that obtaining health insurance coverage leads to lower unpaid debt, fewer bankruptcies, fewer evictions, fewer late payments, and higher credit scores for individuals—especially the sick.

Until recently, most studies evaluating health insurance coverage have focused on the effects of obtaining insurance on one’s health. However, the main reason for getting insured is not necessarily to improve your health, but rather to insure against the financial consequences of a having an illness. Surveys show that, for example, about a third of the uninsured have trouble paying their medical bills and many end up being contacted by collection agencies.

Over the last few years, a growing number of studies have started to look into whether gaining health insurance actually protects your financial health. Many of these studies exploit the expansion of publicly-provided health insurance programs like Medicaid and most have found that there were significant improvements in a family’s finances after gaining coverage, for example through reductions in overdue payments or a lower likelihood of filing for bankruptcy. In previous work, we compared states that expanded Medicaid under the Affordable Care Act (ACA) to states that didn’t, and found large reductions in unpaid balances that were in collections for individuals living in Medicaid-expanding states. However, in that study we did not actually have direct data linking individuals’ credit histories to their receipt of Medicaid. 

In a new study, my coauthors Sarah Miller, Luojia Hu, Robert Kaestner, Ashhley Wong and I address these shortcomings. We study Michigan’s Medicaid expansion under the Affordable Care Act (ACA), also known as the “Healthy Michigan Plan” (HMP), which went into effect in April of 2014 and now covers more than 650,000 individuals. We focus on people who enrolled in the program’s first year and hadn’t had health insurance before they joined. What is unique about our study is our data. We are able to link over 300,000 Medicaid enrollees to their credit reports, providing us with a rich set of information on both their health and financial outcomes. 

For our investigation, we conduct an event study analysis that takes advantage of the timing when different people enrolled in HMP. We can do this because our data enable us to track each person’s financial information on their credit reports both before and after they gained health insurance.

We find that there were significant declines in unpaid debts once Medicaid was expanded—especially medical debts and over-drawn credit cards. We also found reductions in bankruptcies and public records such as an evictions, liens, or lawsuits for not paying rent. Meanwhile, enrollees’ credit scores and car loans rose.

To illustrate our findings, Figure 1 shows the amount of balances in medical collections for individuals relative to the time that they enrolled in HMP.  The dashed line is the period before enrollment and is set to zero by construction. The amounts in medical collections in the periods before and after enrollment therefore show how different these balances were relative to the time people enrolled. In the years prior to enrolling in HMP, medical collections tended to be relatively constant for these individuals. However, in the two years after enrollment there is a pronounced decline in medical collections that culminates in a decline of over $500 by the end of our observation period. 

Figure 1

In Figure 2, we show how Medicaid enrollees fared in terms of their use of credit. We find that in the two years following enrollment, individuals enrolled in HMP were able to gradually increase their borrowing through credit cards by roughly $100 to $150. 

Figure 2

Furthermore, we found that enrollees with chronic illnesses, or those who stayed in a hospital or visited an emergency department after they enrolled, generally experienced even larger improvements in financial outcomes (this, however, varied a bit depending on which measure we examined). This result suggests that the most vulnerable groups in the population might have the most to lose financially in the absence of health insurance. 

Overall, we find that the HMP:

  • Reduced the amount of medical bills in collections that the average enrollee had by 57 percent, or about $515
  • Reduced the amount of debt that was past due but not yet sent to a collection agency by 28 percent, or about $233.
  • Led to a 16 percent drop in public records for financial events such as evictions, bankruptcies and wage garnishments; bankruptcies alone fell by 10 percent.
  • Resulted in enrollees’ being 16 percent less likely to overdraw their credit cards.
  • Led to a rise in individual credit scores, including the number with a “deep subprime” rating falling by 18 percent, and the number listed as “subprime” falling by 3 percent.
  • Allowed enrollees to engage in more borrowing and to buy cars or other goods and services, which is consistent with better credit scores. Enrollees experienced a 21 percent rise in car loans. Other studies have found that Medicaid expansion also reduced use of payday loans and reduced interest rates for low-income people.
  • People with chronic illnesses, and those who were hospitalized or visited an emergency department during the study period saw bigger reductions in their bills sent to collection, and bigger increases in their credit scores.

Bhash Mazumder is a Senior Economist and Research Advisor at the Federal Reserve Bank of Chicago

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