Association for Public Policy Analysis & Management

This study examines the impact of California’s early Medicaid expansion under the Affordable Care Act on the use of payday loans, a form of borrowing used by low-to-middle income Americans. Using a dataset covering the universe of payday loans from five large payday lenders with locations around the country, we implement a difference-in-difference research design to assess the effect of the Medicaid expansion on payday borrowing. Medicaid expansion was associated with an 11-percent reduction in the number of loans taken out each month. Medicaid expansion also appeared to reduce the number of unique borrowers approaching payday lenders each month and the total amount of payday loan debt. The results thus suggest that Medicaid reduces the demand for high-interest loans, a potential impact that may have a myriad of policy implications regarding the financial stability of low-to-middle income families.