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Major Obamacare program drove down bad consumer debt levels in affected states

More Medicaid could mean more money in your pockets — and less for the collection agency.

New research shows that the expansion of Medicaid benefits under Obamacare in many states ended up driving down the average amount of bad consumer debt sent to collection agencies compared to other areas in states that did not expand their Medicaid programs.

Hundreds of people with disabilities, their family members and allies applaud during a rally for Medicaid
Win McNamee | Getty Images

The research, contained in a report issued this week by economists at the Federal Reserve Bank of New York, focused on counties that had high rates of people without insurance prior to implementation of the Affordable Care Care.

"We find suggestive evidence that after the implementation of the ACA in the first quarter of 2014, counties with high uninsurance burden pre-reform in states that subsequently expanded Medicaid had a decrease in average debt sent to collection agencies compared with such counties in states that did not expand Medicaid," the authors wrote.

"Our findings are consistent prior research that have provided evidence that health insurance is good for individual finances," said the authors, whose report was entitled "Is Health Insurance Good for Your Financial Health?"

"We offer suggestive early evidence that the the Medicaid expansion is fulfilling the goal of health insurance: providing 'peace of mind' by protecting against financial hardship," the report said.

The ACA, or Obamacare, originally mandated that all states expand their Medicaid programs to cover nearly all poor adults who earned up to 138 percent of the federal poverty level — $16,394 for a single person. Medicaid, which is jointly run with the federal government, provides health benefits to enrollees either for no monthly charge, or for a limited premium, with out-of-pocket expenses either completely covered, or capped.

Prior to the ACA, many states had limited their Medicaid programs, which are jointly run with the federal government, either by opening them up only to poor people with children, and also by placing very low income caps on recipients, even if they happened to have kids.

A 2012 Supreme Court decision, however, barred the federal government from mandating expansion by all states, leaving the decision to expand eligibility up to individual states. As of now, 31 states and the District of Columbia have expanded Medicaid, with the federal government picking up nearly all of the costs of covering the newly eligible.

The number of people without health insurance has fallen at a greater rate in expansion states than in non-expansion states. Counties with the highest rates of uninsurance tend to be in the south, and the uninsured tend to be poor.

The Federal Reserve Bank's report said that the effect of Medicaid expansion really began being seen in the first quarter of 2015.

Before then, from 2009 until early 2015, there was no statistically significant difference between "counties with high uninsurance rates in expansion and non-expansion states in the average level of debt sent to collection agencies."

"Collections in counties that did not expand Medicaid grew along similar trends as in counties that did," the authors wrote.

But beginning in early 2015, a pronounced difference was seen.

By the fourth quarter of 2015, "on average, collections declined by more than $100 per capita in the counties most affected by Medicaid expansion relative to the less affected counties," the report said.

"This is a sizeable decline, given that the mean of collection balances over our sample period is $280," the report said.

The authors said that it was not surprising that the decline was not seen as soon as the ACA began being fully implemented, in early 2014, because "bills can take many months to enter collections."

The report also found some evidence, not nearly as strong, that suggests that Medicaid expansion has helped lower average per capita credit card balances in the affected counties in the past three quarters. And there is also evidence that suggests credit risk scores have improved in such counties.