Medicaid Expansion Improves People’s Financial Stability

Last month, Kentucky asked the federal government for approval to make significant and troubling changes to its highly successful Medicaid expansion program. To justify its request, the state asserted that these changes would help “break the cycle of poverty.”

However, the results would likely be the opposite.

Many of the changes Kentucky included in its request to the Centers for Medicare and Medicaid Services (CMS)—adding a monthly premium, program lock-outs for people who do not pay their premiums, and a work or community service requirement—would make it harder for low-income people to keep coverage and could lead to long periods where Medicaid eligible individuals go uninsured.

Not having health insurance leaves people open to racking up high amounts of medical debt. Greater debt can deepen poverty.

The fact is, by providing health insurance and helping people in the program avoid medical debt, Medicaid coverage can actually improve the financial health of its enrollees. Two recent reports, one in April and one in June, offer new evidence supporting that link.

Data show that Medicaid expansion increases the financial stability of people in the program

In April, researchers from the Federal Reserve Bank of Chicago, the University of Michigan, and University of Illinois published a study based on credit reporting data from 2010 through 2015. Researchers looked at data from zip codes with a high share of low-income, uninsured residents living in Medicaid expansion and non-expansion states.

They found that Medicaid expansion was associated with a significant reduction in people’s unpaid bills and the amount of debt sent to third party collection agencies. They estimated a reduction of $600 to $1,000 in the collections balances among people gaining Medicaid coverage through the expansion.

A second study  looking at the impact of Medicaid expansion coverage and people’s financial security was published in June by researchers from the Federal Reserve Bank in New York. That study found that Medicaid expansion was associated with an average decline in credit card debt of around $200, as well as decreases in third party collections.

Individual debt reductions at those levels may not sound huge to everyone. But, for a person living at the poverty level, $600 is 5 percent of their annual income and 60 percent of a month’s income. A program that helps reduce debt by $600 would mean considerable financial relief.

Those two studies add to a growing body of research showing that expanding Medicaid increases the financial stability of people enrolled in the program. Among other studies from recent years linking Medicaid coverage to financial security:

• The Oregon Health Insurance Experiment found that adults gaining Medicaid coverage were 40 percent less likely to borrow money or skip paying bills in order to cover medical care, were less depressed, and were more financially secure.
• A 2010 study of pre-ACA state Medicaid expansions from 1992 through 2004 found that a 10 percentage point increase in Medicaid eligibility reduces personal bankruptcies by 8 percent.

In addition to helping people get the health care they need, these studies show that Medicaid coverage helps protect individuals from health care costs they cannot afford—precisely the financial protection that health insurance is supposed to provide.

Kentucky’s Medicaid expansion can help lift people out of poverty

In Kentucky, in 2014 nearly 800,000 Kentuckians—19 percent of the state’s residents—lived in poverty, making it one of the poorest states in the country. It is laudable that the governor acknowledges the need to address this and help people move out of poverty. Medicaid coverage can help do that. It can mean measurable improvements in individuals’ finances.

That’s a real hand-up.

But creating obstacles like monthly premium payments and work requirements between people who need health care and Medicaid expansion will lead only to people going without health insurance.

If Kentucky really wants to be serious about helping residents “break the cycle of poverty,” it should look at making it easier, not harder, for eligible individuals to get and keep Medicaid coverage.