Everyone knows that expanding health care coverage will have a positive impact on health and well-being. But what about its effect on household debt? Medical debt is a terrible problem that is more or less unique to the United States. In fact, medical debt is so prevalent that it is the main cause of personal bankruptcy in this country. Studies show that medical debt has caused many Americans to go without food and heat and even forego medical treatment.
One of the most important reasons for passing the ACA was to rein in the medical debt epidemic. But will the ACA really succeed in reducing medical debt? An interesting new study from the Federal Reserve Bank of Chicago offers some clues. The study examined the impact of Massachusetts’ 2006 health care reform on household finances. As the researchers note, the Massachusetts reform bears strong parallels to the ACA:
In many ways similar to the Aordable Care Act (ACA) that followed in 2010, this reform aimed at achieving near-universal coverage within the state by combining a mandate for individual insurance with insurance market reforms and a broad expansion of subsidized coverage for low- and middle-income households.
The Chicago Fed study analyzes data from a credit reporting agency from before and after the reform across different counties and age groups in Massachusetts. While researchers didn’t look at medical debt as such, they did examine a variety of other household financial outcomes. Here’s what they discovered:
We found that the Massachusetts reform improved financial outcomes across many dimensions: it improved credit scores, reduced delinquencies, lowered the fraction of debt past due, and reduced the incidence of personal bankruptcy. We found a particularly pronounced reduction in large delinquencies of over $5,000, but observe almost no effect on delinquencies of smaller amounts. We also found suggestive evidence that the reform reduced third-party collections and total debt.
Intriguingly, there is some evidence that the reform may have decreased economic inequality, in that those who were struggling the most financially appeared to reap the greatest benefits:
These effects tend to be larger among individuals whose credit scores were low at the time of the reform, suggesting that the greatest gains in financial security occurred among those who were already struggling financially.
In short, say the authors:
Our results indicate that public policies that expand health insurance coverage do have pronounced effects on financial stability and well-being. […] These results suggest that the financial implications of health care reform extend well beyond patients and health care providers and into many areas of the economy.
These results are extremely encouraging. They indicate that health care reform is providing debt relief and improving financial stability among low- and middle-class households in Massachusetts, which suggests that the ACA can do the same nationwide. And with fewer Americans drowning in debt, maybe, just maybe, our dysfunctional economy can start working the way it’s supposed to again.
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