Association for Public Policy Analysis & Management

Over half of the uninsured non-elderly adults in the U.S. face difficulties paying their medical bills. In this paper, we quantify the effects of the Medicaid expansion provision of the Affordable Care Act (ACA) on households’ financial health. Our findings indicate large financial benefits from a substantial reduction in unpaid medical bills as evidenced by better access to and lower prices of credit. Combining state-level variation between adopting and non-adopting Medicaid expansion states with a nationally representative panel of 5 million credit reports from a large credit bureau, we start out by providing the first direct evidence on the effect of the Medicaid expansion on medical debt. We find that in its first two years the reform saved households $4.5 billion in medical debt. Second, we quantify that the reduction in medical debt reduced delinquencies, improved Fico scores, and led to 113,000 fewer bankruptcies, mostly among subprime individuals. We then document an increase in credit offers and interest rate reduction for credit card, home equity lines, personal loans, as well as automobile and mortgage loans. Together these benefits imply annual interest rate savings of more than $1.1 billion or 12% of Medicaid spending. Finally, we turn to individual’s borrowing decisions and find that individuals reduce borrowing despite expanded access to credit. We find that interactions of the Medicaid expansion with state asset test and bankruptcy protection laws can largely account for this observation.