Expanded Medicaid Eligibility Reduces Debt for Low-Income Individuals

In 2009, when President Obama placed healthcare at the top of his agenda, the weight of healthcare costs on individuals was a driving media narrative. Stories about families losing their homes to pay for cancer treatments added a human face to the fact that medical expenses are one of the most common causes of bankruptcy. Since the passage of the Affordable Care Act (ACA), the improvement in financial security of low-income populations is not often cited as a clear benefit of healthcare reform, perhaps because it is hard to measure. Simply counting the insured before and after the ACA is a research challenge, and measuring the ACA’s impact on individual’s financial status is even trickier.

In a recent study, researchers from the Federal Reserve Bank of Chicago, the University of Illinois, and the University of Michigan examined credit-reporting data from a major credit bureau for those who were most likely to receive health coverage through the ACA expansion of Medicaid eligibility. They hypothesized that additional health coverage would ideally limit large health expenses, even among those with high-deductible plans, which have become more commonplace in recent years. The group empirically tested this hypothesis by taking advantage of disparities in the implementation of the ACA.

The Supreme Court ruling in National Federation of Independent Business (NFIB) v. Sebelius (2012) allowed individual states to choose whether to expand Medicaid. By the end of 2015, 29 states and the District of Columbia had adopted Medicaid expansion, which created a natural quasi-experiment, allowing researchers to examine healthcare utilization for individuals with similar income levels and health status in both Medicaid-expansion states and non-Medicaid-expansion states. The ACA provided federal funds for three years—and additional funding after three years—for states that expanded eligibility for Medicaid coverage to those earning up to 138 percent of the Federal Poverty Line (FPL), roughly $16,242 for an individual in 2015.

The researchers examined financial data for those most likely to be covered by Medicaid expansion. The researchers used four years of credit data from before Medicaid expansion and two years of data after Medicaid expansion gathered from the nationally representative Federal Reserve Bank of New York Consumer Credit Panel/Equifax (CCP). They then analyzed data from the American Community Survey from 2008 to 2012 to identify zip codes with the highest estimates of uninsured individuals between the ages of 19 and 64, and income less than 138 percent of the FPL. Realizing the challenges to successful enrollment in health coverage, the authors made the conservative assumption that only half of eligible individuals obtained coverage. Additionally, the authors analyzed National Health Interview Survey data from 2010 to 2013 to estimate the number of hospital or Emergency Room (ER) visits for individuals in this age and income group.

The researchers found that individuals not covered by Medicaid expansion were between $600 and $1,000 more in debt than their peers in states that extended coverage. The researchers also found that unpaid bills and debt sent to collection were significantly reduced among those living in zip codes with large numbers of uninsured, low-income individuals—those most likely to be covered by Medicaid—in Medicaid-expansion states. Estimated savings for the individuals who required hospital or ER visits were between $1,400 and $2,300.

Estimating savings resulting from policy changes is extraordinarily difficult because prices are not consistent between regions or over time. Many reports on the impact of Medicaid expansion use a difference-in-difference research design, where outcomes between expansion and non-expansion states are compared before and after the onset of expansion in 2014. These researchers used an alternative approach, the synthetic control method, to select treatment and control groups. By composing weighted averages of observations from states that did not adopt Medicaid expansion, they created a synthetic control group that avoided the challenge of comparing individuals in states with substantially different populations and demographics.

An analysis of this nature inevitably involves many assumptions; however, the use of an advanced methodological approach and high-quality data sources provides reasonable strength to the researchers’ findings. These levels of savings have a substantial impact on low-income populations. Savings of this level—from $600 to $2,300—can mean the difference between financial hardship or foregoing medical care. This research suggests the ACA, and particularly Medicaid expansion, helped reduce financial hardship for low-income individuals. A Republican-led Congress is likely to make efforts to alter the ACA, possibly by allowing states more flexibility in the implementation of the law. If new legislation allows for increased state-level decision-making through block grants or reduced federal regulations, states should consider the non-health impacts of their reforms. The economic impact of the ACA on low-income individuals can easily be overlooked, but the seemingly positive effects in terms of reduced debt and cost savings are crucial elements for states to consider.

Article source: Hu, Luojia, Kaestner, Robert, Mazumder, Bhashkar, Miller, Sarah, and Ashley Wong. “The Effect Of The Patient Protection And Affordable Care Act Medicaid Expansions On Financial Well-Being.” National Bureau of Economic Research, No. 22170 (2016).

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