Home insurance doesn’t make a home less flammable. It protects homeowners against financial disaster should something happen to their home. The same holds true for auto insurance, for life insurance, and for disability insurance. And though we often talk about health insurance in terms of making people healthier, its true goal is the same as with other insurance: to safeguard the financial health of beneficiaries in the face of undesirable circumstances.
Even in that respect, the Medicaid expansion appears to be working.
Many articles have focused on the positive effects of Medicaid on health and well-being of recipients. A recent National Bureau of Economic Research working paper highlighted instead the effect of Michigan’s Medicaid expansion on Medicaid recipients’ financial health.
Focusing on Financial Health
Previous work in the area has been limited by an inability to focus on Medicaid beneficiaries themselves. Studies have, for example, examined how financial outcomes changed in populations living in areas with high rates of uninsurance before and after an expansion of coverage. Such studies are limited in their ability to isolate the effect of coverage in analyses. The Oregon Health Insurance Experiment, while benefiting from its randomized controlled design, was limited in scope and its ability to detect rare outcomes like bankruptcies.
The Michigan study linked data on enrollment and health services utilization in Medicaid in Michigan for more than 320 000 beneficiaries to credit report data. This allowed researchers to focus on Medicaid’s effect on groups known to have significant health issues and to see how the provision of Medicaid coverage affected financial outcomes.
They found that between 12 and 21 months after enrollment, those who enrolled in Medicaid saw their medical bills in collections decrease by more than $500 on average, or by more than half relative to the average before the Affordable Care Act was passed. Medicaid coverage also was associated with a reduction in debt sent to third party collection agencies by $233. Evictions, bankruptcies, and wage garnishments dropped an absolute 0.07%, which is a relative reduction of 16%.
Individuals covered by Medicaid were also 16% less likely to overdraw their credit cards.
Medicaid coverage was even associated with an increased ability to borrow—which is necessary to buy homes or obtain higher education. Credit scores in the “subprime” range dropped 2%. Those in the “deep subprime” range dropped an absolute 3% (relative reduction of 18%).
The robustness of the data allowed the researchers to do subgroup analyses. They found that the above effects were stronger for those with chronic illnesses. They were also stronger for those who had a hospitalization or visit to the emergency room in the first year after obtaining coverage.
This isn’t to say that there weren’t financial protections for people who were healthier. There still were, but the protections were greatest among those who took the largest hits. That’s how insurance is supposed to work. This study shows that, with respect to Medicaid, it is working.
Previous research in this area has often focused on bankruptcy. The most well-known analysis, from 2009, argued that more than 60% of bankruptcies occurred because of medical debt. A more recent study in 2018 questioned the methodology of the 2009 study, though, arguing that its finding was flawed. In the new analysis, the authors performed a prospective cohort study of people who were hospitalized and found that the number of bankruptcies caused by hospitalizations to be far less, perhaps 4%. Given that some medical debt comes from other than hospitalizations, this may still be a low estimate, but they argued that the number of bankruptcies caused by medical debt was still far lower than 60%.
Of course, all of these numbers are problematic. They also focus only on the “end-stage” outcome of financial distress. Many other and much more common factors matter as well. Detecting meaningful improvements in the amount of debt sent to collectors, in the amount past due, or in the likelihood of going over a credit card limit are all important indicators of financial health.
Such improvements were all associated with obtaining Medicaid under the expansion in Michigan.
These are in addition to the many other factors that are likely improved by obtaining Medicaid. Earlier this year, a systematic review of the studies of the effects of the Medicaid expansion—of which there were 77, mostly quasi-experimental—found that in a majority of studies, the expansion led to improvements in access to care, quality measures, and increased use of health services.
A previous review found that in general, Medicaid increases access to care, leads to the earlier detection of diseases, and improves medication adherence and the management of chronic diseases.
Potential Long-term Benefits
Further, volumes of work detail the potential long-term benefits of Medicaid coverage. Children whose coverage expanded in the 1980s and 1990’s were likely to earn more as adults, which leads to increased tax receipts. They were also more likely to finish high school and college. African Americans who have had more years of Medicaid eligibility as children have fewer emergency department visits, fewer hospitalizations, and lower mortality as adults.
Many states even expect the expansion to yield positive economic benefits to their budgets. Much of this comes from lower payments for uncompensated care, higher tax revenue, and potential reductions to programs that Medicaid will now cover.
But at its heart, insurance should provide financial protection to its beneficiaries. It should free them from the undue burden that poor health might place on their budgets and ability to afford other necessities of life. It appears that even in that specific domain, the Medicaid expansion is succeeding.
About the author: Aaron E. Carroll is a professor of pediatrics at Indiana University School of Medicine who blogs on health research and policy at The Incidental Economist, makes videos at Healthcare Triage, and tweets on Twitter at @aaronecarroll. (Image: Ted Grudzinski/AMA)
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