By Heather Drost, Contributing Editor
For years, some health reform advocates have lauded the potential benefits of insurance for an individual's financial security and well-being—and now, a growing body of research is beginning to back up their claims.
"One of the crucial, but often unheralded, benefits of health insurance is protection against the potentially dire financial consequences of an expensive illness," Katherine Baicker, a health economics professor at the Harvard School of Public Health, tells me. "There is mounting evidence that Medicaid is an important contributor to the financial security of beneficiaries."
Past studies in Oregon and Massachusetts laid the scientific foundation by providing evidence health coverage reduces a person's medical debt. For example, the Oregon Health Insurance Study—which Baicker co-authored—found that low-income individuals who obtained Medicaid coverage were 44 percent less likely to borrow money or be unable to pay for medical care and were 23 percent less likely to have medical collection.
A new working paper published in the National Bureau of Economic Research builds on those findings by looking at the financial effect of gaining Medicaid coverage on uninsured individuals ages 19 to 64. The researchers used credit report data from the Federal Reserve Bank of New York Consumer Credit Panel/Equifax to identify low-income areas where residents likely would qualify for Medicaid under the Affordable Care Act's (ACA) expansion. The researchers focused on quarterly data from 2010 through 2015.
Overall, the researchers estimate that on average individuals who went from being uninsured to enrolling in Medicaid under the coverage expansion saw a $600 to $1,000 decline in the amount of debt collection they owed.
Experts weigh in
That dollar finding is "a definite contribution" to research on the effects of Medicaid on an individual's financial security, according to Carter Price, a mathematician at RAND Corp.
Further, the latest findings provide evidence at the national level that Medicaid is financially beneficial to enrollees. Until now, Caroline Pearson, senior vice president at Avalere Health, says, "We haven't had a way to test it on a broad national scale."
Meanwhile, Matt Brodis, a research analyst at the Center for Budget and Policy Priorities, says, "What is powerful to me about the new study is the [Oregon Health Insurance Experiment] results were related to medical debt. This study looks broadly at medical debt" to determine whether it is contributing to a larger financial problem that can be relieved by Medicaid coverage.
The average American has $1,766 in overdue medical debt
He adds, "The finding that debts collected are reduced for Medicaid is a significant finding for the broad role Medicaid plays in" individuals' financial lives.
However, some experts say the study provides little value. Michael Cannon of the Cato Institute says, "This study doesn't tell us anything we didn't already know," adding, "It's not surprising that when you give people money or subsidies worth thousands and thousands of dollars that they will have fewer money problems."
While this is only the first national study to examine the issue, the findings could hold several implications for beneficiaries, policymakers, and the overall health care system.
For the previously uninsured beneficiary who gained Medicaid coverage, Robert Kaestner, a professor at the University of Illinois and study co-author, says the findings demonstrate that Medicaid could significantly improve individuals' financial stability. "This gives people extra money to either spend on other resources or pay down other means of debt," he says.
However, Cannon questions "whether and to what extent expanding Medicaid to more people traps people in low-wage jobs, traps people in poverty because you are offering them a very valuable subsidy ... and threatening to take it away from them if their income rises." He says research is needed to measure those potential effects.
In the meantime, Price says that for policymakers, the findings serve "as a mark in favor for expanding Medicaid" because it shows that the expansion has benefits. Brodis, similarly, says, "This seems to be a good study to insert into" discussions surrounding Medicaid expansion.
Meanwhile, Pearson notes that hospitals also have seen a decrease in bad debt since the ACA was signed into law, particularly in states that have expanded their Medicaid programs. She says, "If hospitals are having less bad debt, then it is likely that low-income people also are experiencing less medical debt, so those two things should go hand in hand, so it is nice to see that they are."
Health insurance exchanges
While the new study focused solely on the Medicaid population, some experts say they expect to see similar trends among individuals with higher incomes shopping in the exchange market—just to a lesser degree.
Study co-author Sarah Miller, an assistant professor of business economics at the University of Michigan, cites an analysis of the 2006 Massachusetts health reform, which primarily affected a higher-income population similar to those shopping on the exchanges. She tells me that the analysis "showed improvements across a large number of financial indicators including bankruptcy, amount past due and collections."
However, Pearson notes that the findings in the exchange market are likely to be less acute because individuals with higher incomes typically can absorb more health care costs without going into debt. She also says that there are differences in the size of enrollment and previously uninsured status between the Medicaid population and those in the exchanges.
For Americans, medical debt outweighs that from credit cards, education
Price provides another reason the individuals in the exchanges could be seeing a lesser effect: the presence of high-deductible health plans. A New York Times analysis last year found that in multiple states, more than half the health plans available through the federal exchange had annual deductibles of $3,000, and that insured consumers cited them as a reason for underusing their coverage.
Price says that while he expects the exchange population would see similar trends, "you hear a lot of anecdotes with high-deductible health plans on exchanges and that could be a reason the effect might not be as great."
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