Of Interest

How healthcare providers make, spend, borrow and invest money.

More Medicaid means fewer bankruptcies

12 pm, Apr. 14

Here's research to consider as House Republicans push for policies widely expected to reduce Medicaid benefits and enrollment:

Economists who analyzed court and demographic data from 1992 through 2004 found as Medicaid expanded, personal bankruptcies declined.

Tal Gross and Matthew Notowidigdo, in research to be published by the Journal of Public Economics (PDF), found that when households eligible for Medicaid increased by 10 percentage points, consumer bankruptcies dropped by 8%.

Members of Congress, with support from Republican governors, have introduced legislation in recent weeks that would cut Medicaid financing by $771 billion over a decade.

Last week, the House Budget Committee endorsed House Republicans' proposal to convert Medicaid financing to block grants, a plan the Congressional Budget Office said would likely force states to cut Medicaid eligibility, benefits or provider payments. One recent analysis of block grant financing reached the same conclusion.

Gross and Notowidigdo found states with the most significant Medicaid expansion during the dozen years saw consumer bankruptcies grow more slowly than states with the most limited eligibility gains.

In California, Missouri, Florida, Minnesota and the District of Columbia, where the largest expansions took place, the average number of bankruptcies grew 17% from 1992 to 2004. Meanwhile, during the same period, South Carolina, Texas, North Carolina, North Dakota and West Virginia saw the average number of bankruptcies increase by 115%.

The study also looked more closely at results by zip code within 33 district bankruptcy courts. As Medicaid expanded, bankruptcies declined most notably in zip codes with the largest share of children or households earning less than $40,000 annually. Policymakers created the State Children's Health Insurance Program, a publicly funded safety net insurer, in 1997, which the authors include in the Medicaid expansion analysis.

The program provided insurance for more than 7.7 million children during 2010.

Gross, an assistant professor in health policy and management at Columbia University, said the researchers sought to contribute new findings to an ongoing debate over the role of medical debt and other factors—such as unemployment, business failure or consumers' potential abuse of bankruptcy laws—in the decision to declare bankruptcy.

Based on their findings, Gross and Notowidigdo, an assistant professor of economics at the University of Chicago, estimated that household medical costs (or out-of-pocket spending) were “pivotal” in roughly one out of four bankruptcies among low-income households. Gross called the estimate a “back of the envelope” calculation.

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