Federal Reserve Bank of New York
June 6, 2016
Is Health Insurance Good for Your Financial Health?
By Nicole Dussault, Maxim Pinkovskiy, and Basit Zafar
What is the purpose of health care? What is the purpose of health insurance? When people fall ill, they seek health care in order to get better. But insurance has a slightly different function: Its main role is not to protect our health per se, but to protect our finances.
Protection against financial hardship was one of the drivers behind passage of the 2010 Patient Protection and Affordable Care Act, commonly known as the Affordable Care Act (ACA). As President Obama said in a 2015 weekly address, "… that's the whole point of health insurance. Peace of mind."
In this blog post, we discuss the results of a research project that examines the effect of the Affordable Care Act's Medicaid expansion on personal financial indicators. We find suggestive evidence that after the implementation of the ACA in the first quarter of 2014, counties with a high uninsurance burden pre-reform in states that subsequently expanded Medicaid had a decrease in average debt sent to collections agencies compared with such counties in states that did not expand Medicaid.
From the Conclusion
While the full effects of the Affordable Care Act on financial health are yet to be seen, and while the effects of the ACA — positive or negative — are not restricted to financial health, we offer suggestive early evidence that the Medicaid expansion is fulfilling the goal of health insurance: providing "peace of mind" by protecting against financial hardship.
Comment by Don McCanne
One of the most important purposes of the Affordable Care Act (ACA) was to make health care affordable. After all, "Affordable" is in its name. This study reported by the Federal Reserve Bank of New York confirms that, indeed, health care has become more affordable for new enrollees in Medicaid, as confirmed by the decline in debt sent to collection agencies in states that did expand Medicaid. But that's not the full story.
One of the problems faced by the architects of ACA was that health care costs have become so expensive that insurance premiums would not be affordable without modifying the private health plans that were to be sold on the exchanges. Thus they established the benchmark silver plan at an actuarial value of 70 percent (the patient pays an average of 30 percent of the costs if not qualified for subsidies). The easiest way to do this was to require high deductibles. Other studies have shown that these deductibles have made health care less affordable and have resulted in a perpetuation of medical debt that frequently ends up being assigned to collection agencies.
Why then would Medicaid patients have a lower incidence of accounts assigned to collection agencies than do those with private plans? It is simply because most Medicaid patients do not have deductibles or other forms of cost sharing. They do not incur much in the way of medical debt. As President Obama said, "That's the whole point of health insurance - Peace of mind."
We can do the same for everyone else. We can prevent financial hardship from medical debt by providing first dollar coverage for everyone. With a well designed single payer system we can control costs through much more patient-friendly means. For those who say that we can't afford that, other nations have first dollar coverage while spending considerably less than we do with our highly dysfunctional financing system. Single payer. It's that simple.