Even before the COVID-19 pandemic hit in 2020, policymakers were focused on the state of U.S. health care, particularly how Americans did — or did not — obtain health insurance coverage. This CFI in Focus examines the results of two recent Consumer Finance Institute (CFI) papers that delved into the financial outcomes for individuals gaining and losing health insurance. The goal was to answer two questions important to making good policy decisions: 

  • Does health insurance provide financial benefits to all recipients, or are there demographic groups that receive reduced or no financial benefits?
  • Is the magnitude of the financial gains to an individual who obtains health insurance equal to the magnitude of the financial loss when the coverage is eliminated or reduced?

To answer the first question, CFI Research Fellows Vyacheslav Mikhed and Nathan Blascak studied the financial outcomes stemming from the Affordable Care Act (ACA) mandate that allowed parents to keep their children on health insurance policies until the age 26. At age 26, these young adults were disenrolled from their parents’ policies.

First, the authors compared the amount of out-of-pocket (OOP) medical expenditures paid by young adults between the ages of 23 and 25 with the OOP medical expenditures of young adults between the ages of 27 and 29. The comparison was done before and after the implementation of the ACA to see if young adults eligible to receive parental insurance had lower medical expenditures than individuals who were too old to be eligible. Second, the authors compared the financial outcomes of young adults who became eligible for insurance in 2010 with outcomes of young adults who just missed the age cutoff. They followed individuals in both groups over time from 2007 to 2013. In addition, to estimate the effects of losing insurance access, the authors took advantage of the age cutoff and compared financial outcomes across ages before and after the mandate’s implementation.

The results indicate that gaining access to insurance improves the financial outcomes of young individuals. Adults under the age of 26 had lower OOP medical expenditures in the years after the ACA was implemented, compared with individuals older than 26. The first group also had fewer accounts sent to third-party debt collectors, a lower probability of filing for personal bankruptcy, and a lower probability of incurring very large OOP medical expenditures. The authors concluded that “despite being healthier than other age demographics, health insurance provides valuable financial protections for many young individuals.”

To examine the second question on the asymmetry of financial outcomes of gaining versus losing coverage, Mikhed and Blascak teamed up with CFI Visiting Scholar James Bailey to explore the consequences of changes to the Medicaid program in Missouri in 2005. This reform resulted in approximately 100,000 Missourians losing their Medicaid eligibility and lower benefit generosity for the remaining enrollees. The study estimated that the probability of an individual in Missouri being on Medicaid declined by 4 percentage points, and the uninsured rate increased by 2 percentage points in the years following the reform.

The study found some asymmetry in the effect of the reform on debt in collections — a frequently used measure of financial distress. The authors calculated that for Medicaid-eligible individuals, debt in collections increased by $271‒$444 as a result of the Medicaid cut in Missouri. This is lower than most estimates from studies on recent Medicaid expansions, which have found that debt in collections can be reduced by $390, to $1,231.

How can these asymmetric effects be explained? One potential explanation could be that newly enrolled Medicaid beneficiaries examined in the previous studies of program expansions have higher medical expenses or worse health conditions, and thus experience larger financial benefits, than the Medicaid-eligible individuals in the current study, who were already covered by Medicaid for some time. The authors note that, given current discussions regarding state Medicaid reform, “acknowledging the presence of asymmetries in these effects is important to properly assess the costs and benefits of any policy change, especially for populations that may be either credit constrained or less able to take on and manage additional debt.”

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The views reflected in this report represent those of the authors and not necessarily those of the Federal Reserve Bank of Philadelphia or the Federal Reserve System.

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