The Effects of the ACA Medicaid Expansion on Household Borrowing

We assess the effects of the ACA Medicaid expansion on borrowing behavior by combining state-level variation between adopting and non-adopting Medicaid expansion states with a nationally representative panel of 5 million credit reports from a large credit bureau. Despite expanded access to credit and reduced precautionary savings motives, we find that the Medicaid expansion had a sizable negative effect on mortgage and non-mortgage debt among individuals with low credit scores. We provide evidence for three mechanisms that can account for this reduction. First, we find evidence for a cash-on-hand motive, which can explain reductions in credit card debt as newly insured individuals are less likely to receive new medical bills. Second, we find that the removal of Medicaid asset tests in a subset of expansion states led to a substantial reduction in borrowing among the previously insured Medicaid beneficiaries. And third, we find evidence for excessive borrowing and strategic default and insolvency in the pre-expansion period in states with generous bankruptcy protection. These incentives are mitigated as newly insured individuals are less likely to file for bankruptcy.