Medicaid and Household Savings Behavior: New Evidence from Tax Refunds

Our study exploits data on the tax refund decisions of over 57,000 tax filers to identify the effect of expanded Medicaid access on the propensity of low-to-middle income (LMI) households to save. Using changes in the eligibility rules for Medicaid under the Affordable Care Act, we simulate a household's probability of Medicaid eligibility over time and use this as an instrument to evaluate the effect of eligibility on savings. We find that Medicaid eligibility has no effect on the savings of the average LMI household. However, among LMI households experiencing financial hardship, Medicaid eligibility increases both the propensity to save from the tax refund and the level of liquid assets. Notably, Medicaid eligibility increases anticipated tax refund savings rates by 3.7-4.1 percentage points, or roughly $100, for the average financially constrained household. This finding is consistent with theories of strategic defaults at low-incomes.