How Does the 2014 Medicaid Expansion Affect Consumption in Low-Income Households?

In January 2014, several states expanded access to Medicaid as part of the Affordable Care Act, extending eligibility for public insurance to millions of low-income households. Given its large scale, the Medicaid expansion has the potential to generate substantial improvements in the well-being of low-income households in the United States. Estimating the impact of this expansion on low-income households’ well-being—and evaluating the costs of benefits of the policy—requires estimates of its effect on household consumption.

In theory, access to affordable insurance through Medicaid should lower the price of healthcare, providing a “windfall” to low-income households and raising consumption. This increase in consumption can come through healthcare or non-healthcare goods. Access to insurance may enable low-income households to seek out healthcare that they would have avoided in the absence of insurance or if they had access only to high-cost private insurance options. Alternatively, access to insurance may lower expenditure on healthcare, allowing households to spend more on other goods or savings.

To estimate the impact of Medicaid expansion on household consumption, we use a difference-in-difference analysis: We compare consumption among poor households in expansion vs. non-expansion states for the pre-ACA period and 12 months after expansion, using data from the Consumer Expenditure Survey. We estimate the impact of expansion on healthcare spending, housing, apparel and services, transportation, entertainment, personal care, reading, education, food and tobacco, personal insurance and pensions and savings.

Our work adds to a recent literature exploring the impact of the Medicaid expansion. Recent papers look at the impact of this Medicaid expansion on insurance take-up and find substantial increases in coverage, though this comes partially through crowd-out of private insurance. However, even if the increases in enrollment in public insurance from the Medicaid expansion comes completely partially from  other sources of insurance, it may raise low-income households’ well-being by providing cheaper healthcare. Thus, ignoring consumption provides an incomplete view of the expansion’s impact on the targeted populations.