Does health insurance improve the financial health of individuals?
American consumers hold billions of dollars in debt, but they hold it very unevenly. “If you work with credit data and results in the United States, you see this huge variation both between states and within states,” says Paul Goldsmith-Pinkham, assistant professor of finance at Yale SOM. “There are many reasons for this, but it’s interesting how much the variation in health insurance resembles the variation in debt.”
The question is: are geographic differences in health insurance coverage and geographic differences in debt related? And if so, does that mean that better access to health insurance can help reduce consumer debt? Goldsmith-Pinkham examines the link between health insurance and debt in a recent working paper, co-authored with Maxim Pinkovskiy of the Federal Reserve Bank of New York and Jacob Wallace of the Yale School of Public Health.
“In an ideal world, you would design a randomized controlled trial,” says Goldsmith-Pinkham. Such an experiment would assign who gets insurance and who doesn’t, and then later measure the effect on their level of debt. But the universal availability of Medicare offered a reasonable substitute. “We know in this case that the policy takes effect at a specific age – 65 – and that the people on either side of that line are comparable.”
Combining demographic and health insurance information from the American Community Survey with Equifax credit reports, the researchers found that a sharp increase in insurance coverage among the 65-year-olds corresponds to a sharp decrease in insurance coverage. debt collection at exactly the same time. Interestingly, other financial results, like bankruptcy and credit scores, don’t have the same close connection to insurance coverage.
The average debt reduction for all 65-year-olds is around $ 28, but, Goldsmith-Pinkham notes, the size of that number is misleading. “In fact, the proportion of people this age who have debt collection is only around 5%,” he says. “If you start talking about the actual reduction for those in debt, you multiply by 20 for a calculation at the end of the envelope and get over $ 600 per person.”
A closer look at the data revealed a number of notable details. The first is that the reductions in collection debts varied considerably by geography. In San Francisco, for example, the average per capita drop in collection debt was $ 8; in Raleigh, North Carolina, where insurance coverage gains were comparable to those in San Francisco, the average per capita drop was $ 53. More generally, in the southern United States, the availability of Medicare has particularly strong effects on debt collection.
When the researchers divided the data into 741 “commuting zones,” they found that Medicare’s effect on debt collection is more pronounced in areas with a higher proportion of black residents, people with disabilities, and people with disabilities. for-profit hospitals.
“This suggests that there are great things that go beyond just health insurance,” says Goldsmith-Pinkham. “There could be another dimension to the value of Medicare. Maybe, for example, it gives people the opportunity to switch from a bad private plan to a good public plan. “
“Medicare appears to bring significant relief to small groups of people who owe thousands and thousands of dollars.”
Finally, researchers found that people with the most debt benefited the most from Medicare. Half of those 65 who owed $ 10,000 or more left this category of debt once Medicare became available; of the 65-year-olds who owed $ 1,000 to $ 2,500, less than 1% joined a group with less debt. To be fair, Goldsmith-Pinkham notes, only a tiny fraction of the 65-year-old has more than $ 10,000 in debt, or about 0.2% of the population in their study.
“But, nonetheless, there is one element these long queues are introduced to: Medicare appears to bring significant relief to small groups of people who owe thousands and thousands of dollars,” Goldsmith-Pinkham says. “We can’t say exactly where they’re heading because of statistical noise, but we can say the program is improving the world’s worst condition.”
Medicare therefore appears to reduce the debt burden on individuals. Does it reduce costs for us as a society? If Medicare eligibility were, for example, pushed back from 65 to 60 or 55, would there be any overall financial savings in the system? Not clear.
“In this case, when we give insurance to people, the government pays for it,” Goldsmith-Pinkham says. “The question is – and our article cannot answer it – if we transfer money to a certain extent, then do we do it more efficiently, and therefore are we actually creating savings? Or are we seeing more of a redistributive effect, more based on equity, where the burden of payments is shifted? ”
Written by Dylan Walsh.