When Supreme Court Chief Justice John Roberts wrote the decision in 2012 to uphold the Affordable Care Act, the court set the stage for a natural experiment in economics. His majority opinion in NFIB v. Sebelius invalidated the part of the law that would have penalized states that refused to participate in the Medicaid expansion, making it optional for states to extend coverage for the most vulnerable Americans. As a result, poor adults in some states would receive health insurance, while poor adults in others would go without.
The court's carveout made it possible to compare the haves with the have-nots across state lines. A new study does precisely that—and finds that access to subsidized health insurance dramatically boosts financial outcomes. Those who were able to acquire health insurance under Obamacare's subsidized exchanges were 25 percent less likely to miss paying their rent or mortgage on time.
It's the first study to link the health-care exchanges (or Marketplaces) to financial well-being, according to Emily Gallagher, assistant professor of finance at the University of Colorado–Boulder. The study looks at the broader personal financial security implications of access to health insurance—beyond health care or even medical debt.
"Your rent or your mortgage bill is the last bill you want to skip," says Gallagher, who conducted the study with colleagues from Washington University in St. Louis and the Federal Reserve Bank of St. Louis. "It's not that many steps away from homelessness."
The paper focuses on adults who fall into the "coverage gap"—people living in non-expansion states who make too much money to qualify for Medicaid, yet too little to get insurance subsidies. In non-expansion states, that dividing limit is the federal poverty line. So adults making 101 percent of the federal poverty line are just barely eligible for Obamacare, but those making 99 percent of the federal poverty line are out of luck. Otherwise similar households, both poor, on different sides of the line face dramatically different financial outcomes.
"It's only by virtue of the fact that some states opted out of Medicaid expansion that we're able to assess the benefits of the ACA," Gallagher says. "Most countries don't change their health laws in these piecemeal ways."
In searching for this narrow band of individuals, the researchers turned to administrative tax data. They joined data on relevant household income levels with voluntary survey responses acquired through a major online tax provider used throughout the United States. (That provider chooses to remain anonymous.) Across three years of survey data (2014–16), the study gathered some 16,000 relevant observations.
Obamacare offers a natural control group. States that accepted the Medicaid expansion have a different threshold level for Obamacare subsidy eligibility than those that didn't. In states that did not accept the expansion, the threshold is right at the federal poverty line. But in states that did take the expansion, Medicaid covers individuals with incomes up to 138 percent of the poverty limit. That means that, in drawing comparisons across state lines, any differential between people at the poverty line should be attributable to access to health insurance under the exchanges.
"We test for this discontinuity at the poverty line in states that did not expand Medicaid and we find large effects," Gallagher says. "Then we go into states that expanded Medicaid and we test whether those effects exist in states that expanded Medicaid, and they don't."
The study finds a large uptake in non-group private insurance coverage at the 100 percent federal poverty line in states that did not accept the Medicaid expansion—meaning that adults who were eligible for Obamacare subsidies indeed took them. The researchers further identified a subsample of households that do not have some other form of insurance that would disqualify them from subsidies on the exchanges (an "intent-to-treat" sample). Among this group, access to Marketplace subsidies resulted in a relative 25 percent decline in home payment delinquency across all years. (Delinquency rates were roughly the same between renters and owners, but this being a study centered at the federal poverty line, renters far outnumbered owners.)
What surprised Gallagher, she says, is how the findings challenged some of her core assumptions about how the poor get health care (or don't). She guessed that Obamacare sign-ups might have a minimal effect on delinquent rent or mortgage payments. If the health care that poor people receive is primarily non-compensated—trips to the emergency room, for example—then poor people should not be sensitive to health-care-related spending shocks.
Instead, low-income households may be the most sensitive to health-care shocks. Her results counter the conventional wisdom that poor people put off health-care spending; often, they can't. The study points to an example from Matthew Desmond's Evicted, which recounts the circumstances of poor renters across Milwaukee. "They had fallen behind [on rent] two months ago, when a neck X-ray and brain scan set Teddy back $507. Teddy's health problems began a year earlier, when he woke up in the hospital after tumbling down some steps," his account reads. Shocks were more pronounced for households that reported a history of health problems on the survey.
"Instead of having roughly a one-in-three chance of being delinquent if you are uninsured and have an income near the poverty line, your chances look more like one in five,” Gallagher says, on the difference that subsidized health insurance makes.
Another way of assessing the financial impact of access to Obamacare is to compare the costs of eviction with the costs of the subsidies. This is tricky, of course, since useful data on foreclosures and evictions are elusive, as Desmond's book shows. But if an eviction costs society $10,000—an assumption based on adding up the toll of vacancies on neighborhood home values, uncollected property taxes, costs related to homelessness, and other hard-to-quantify factors—then the social savings of simply preventing evictions would offset 32 percent of the cost of the ACA subsidies.
This research, which has been provisionally accepted by the Journal of Public Economics, joins a growing body of work demonstrating the indirect cost savings of health care. Health insurance helps people avoid huge out-of-pocket medical costs. And preventative care helps people avoid lost wages from missing work, a big part of the benefit for low-income households. But health insurance also helps prevent the cascade of financial damage that unpaid medical bills can inflict, by preserving credit scores. While political debates about Obamacare often overstate the role of medical bills as a trigger for personal bankruptcy, Americans nevertheless carry a great deal of medical debt. The ACA Medicaid expansion has reduced new medical collections by $5.89 billion, according to a study released this summer, and dissuaded about 25,000 personal bankruptcies per year in expansion states. Other research shows that the fraction of the population reporting problems with medical bills shrinks by about one-third once people reach the age of 65 (and Medicare eligibility).
There's more and more evidence coming out every year that access to health insurance is a powerful financial stabilizer for low-income households, Gallagher says. Maybe the biggest proof of the value of health insurance coverage came in the recent mid-term elections, when voters in three red states—Idaho, Nebraska, and Utah—voted to expand Medicaid under the Affordable Care Act.
"The majority of people voting for Medicaid expansion are not going to get Medicaid,” Gallagher says. "It says to me that people understand there is a socialized cost to not having Medicaid. I'm not sure it's clear to certain politicians. But if you look at the studies, it's overwhelming."