President Obama's health-care reform law made government health insurance available to more people living in poverty or near poverty by expanding Medicaid. The hope was to improve people's physical health, but new research shows an important effect on financial health: The law has helped many poor Americans pay off the collection agent.
The analysis, conducted by a team of university researchers and members of the Federal Reserve Bank of Chicago, estimates that those who signed up for Medicaid under the law reduced their collection balances by $600 to $1,000 each.
The financial benefits of Obamacare for the poor are an "underappreciated" aspect of the law, said economist Robert Kaestner of the University of Illinois at Chicago, who is one of the authors of the new study. "Health insurance, like any type of insurance, is first and foremost a form of financial protection," he said. "It is a real benefit."
Kaestner, working with colleagues at the Federal Reserve Bank of Chicago and the University of Michigan, showed that people who benefited from the expansion used the money they saved on health care to pay down their other debts.
The economists used detailed data on people's personal credit from the Federal Reserve and Equifax, the credit-rating bureau, comparing states that didn't expand Medicaid to those that did. The researchers calculated a series of quarterly average balances in debt collection for each group of states, adjusting the data to account for unrelated differences between the two groups leading up to the expansion in 2014. Since the data on personal credit didn't include information on consumers' health insurance, the researchers focused on data from the poorest Zip codes, where the most people were likely to benefit from the expansion.
The expansion of Medicaid reduced balances in collections (excluding medical debt) by $51 to $85 on average for all working-age consumers living in those Zip codes.
The researchers then made a back-of-the-envelope calculation of how many people gained Medicaid coverage because of the expansion in those Zip codes, using income data from the Census to determine how many were eligible and assuming about half of them enrolled. The researchers concluded that those who signed up for Medicaid secured substantial savings: between $600 and $1,000.
More than half of Americans' unpaid bills are medical bills, according to federal data, so it's no surprise that expanding Medicaid had a major effect on many people's personal finances.
The results provide some vindication for Obamacare, but they don't address what for many is a more basic question. The law seems to have improved people's lives financially, but some experts doubt whether expanding Medicaid made people better off medically, too. Patients were less indebted, according to this argument, but they were no less sick.
An experiment in Oregon a few years ago found that participants in Medicaid were seeing the doctor more and said they were in better health than other residents of the state who had applied for the program but had been denied access in a random drawing. Yet the participants showed insignificant improvements in blood pressure, cholesterol and diabetes.
One way of interpreting this experiment is that while having financial access to doctors and hospitals saves patients money, the treatment they receive has an ambiguous effect on their health.
On the other hand, Kaestner points out that it might be many years before the benefits of health insurance for those Oregon residents participating in Medicaid become clear. He and his colleagues are working on another paper that shows that black children who spent more of their childhoods covered by Medicaid because of changes in the law went on to visit hospitals as much as 15 percent less frequently as adults.
"It’s an important and largely unanswered question," Kaestner said.