Health Insurance, Consumption, and Borrowing: Evidence from the Affordable Care Act's Dependent Coverage Mandate

This paper examines the effect of providing health insurance on consumption and borrowing choices of young adults. Utilizing the Affordable Care Act’s 2010 dependent coverage mandate as an exogenous change in health insurance, we examine individual-level credit data of young adults born in 1982-1983 and 1985-1986. Employing a standard difference-in-differences research design, we find that after the implementation of the mandate, young adults covered under the law increased their use of credit cards, auto loans, and student loans; they also maintained higher balances on these loans. We also find evidence that lenders provided affected individuals with higher credit limits and larger loans. Analyses using data from the Consumer Expenditure Survey show that households with young adults reduced spending on health-related expenses and increase spending in other areas. These findings suggest that a reduction in medical expenditure risk due to insurance coverage may allow young adults to expand their consumption and borrowing and accept additional financial risks.