How Much Does Traditional Insurance Prevent Negative Financial Outcomes? Evidence from Medicare and the Affordable Care Act

We utilize credit report data to study how unpaid medical collections and other financial outcomes are affected by fundamental features of health care. Specifically, we document and discuss the size and age distributions of unpaid medical bills on consumer credit profiles, use Medicare eligibility and the implementation of the Affordable Care Act to identify the causal effect of insurance coverage, and investigate whether geographic variation in healthcare prices is predictive of medical debt. We show that Medicare sharply decreases the dollar value of unpaid medical collections held by consumers. Moreover, as the ACA reduces the extensive margin gain in insurance coverage at age 65, the effect of Medicare on medical debt falls with it. In particular, from 2013 to 2015 the increase in insurance coverage at age 65 falls by 46% and the effect of Medicare on medical collections declines by a similar 53%. However, Medicare has relatively small effects on the number of people who have medical bills sent to collections, instead predominantly reducing the size of bills which go unpaid. In part we reconcile this with the fact that most unpaid bills are relatively small or modestly sized – over half are less than $600. Thus, while Medicare may substantially reduce the size of bills facing the formerly uninsured, that amount may still exceed many consumer’s willingness or ability to pay. In turn, we show that Medicare has muted effects on other outcomes on consumer credit profiles. It is particularly notable that, despite very salient increases in insurance coverage at Medicare eligibility, we observe little change in credit scores at age 65. The patterns we observe are broadly consistent with recent research which argues that the burden of uncompensated care largely falls on health care providers.