Association for Public Policy Analysis & Management

Prior to the ACA, nearly 50 million individuals lacked insurance and 29 million non-elderly adults were underinsured, putting these households at risk for financial distress (Collins et al. 2015; DeNavas-Walt et al. 2011). Both uninsurance and underinsurance may be particularly problematic for low- and moderate-income (LMI) households who face unique problems when struggling to pay expenses, including medical bills. Compared to households at higher income levels that nearly exclusively utilize banks, LMI households often use AFS transaction and credit products, even if they own a bank account. AFS transaction products include non-bank remittances, check cashing services, and money orders; AFS credit products include payday loans, pawn loans, auto-title loans, tax refund anticipation loans, rent-to-own contracts, and more. AFS credit providers in particular are an important source of consumer credit, processing more than $200 billion in transactions annually (Bradley et al. 2009).

This project will analyze whether the ACA insurance expansions change reliance on AFS products with a novel use of Current Population Survey (CPS) data. We employ multiple years of the FDIC-sponsored Unbanked and Underbanked Supplement to the CPS (FDIC-CPS), as well as data on health insurance status from the March CPS to understand how health insurance coverage affects the decision to use AFS providers. The ACA’s Medicaid expansion may protect insured households from high medical bills, potentially reducing the need for utilizing AFS providers due to Medicaid’s relatively comprehensive coverage and generally low cost-sharing. The ACA’s creation of health insurance “marketplaces” may similarly have affected financial decisions of enrolled households. While gaining insurance in the individual market may protect some from high health care bills, the cost sharing required in many plans could increase the use of AFS credit products as households struggle to pay their deductibles, co-payments, and co-insurance. On the other hand, the ACA’s regulation of insurance should prevent underinsurance, lower out-of-pocket expenditures, and reduce AFS utilization.

Our nationally representative data on AFS credit use and health insurance status, merged with state Medicaid eligibility rules and state insurance exchange characteristics, will contribute new insight into the interplay between health insurance and economic security among LMI households. In particular, our paper will inform how expanded access to health insurance for approximately 20 million previously uninsured individuals affect their choice of financial service providers, a decision that can have important ramifications for a household’s long-run economic security and mobility. Our results have implications for the structure of Medicaid, the regulation of insurance products in the individual market, and the interplay between health insurance and consumer finance of LMI households.