Medicaid Expansion and Financial Behavior

• In Event: Medicaid Expansions and Contractions: the OBBBA, Poverty & Financial Insecurity

Abstract

We examine the effect of Medicaid expansion on financial behavior and financial literacy. Medicaid expansion was a key component of the 2010 Affordable Care Act's health insurance reforms that significantly broadened coverage, particularly for low-income adults under the age of 65. Its rollout was staggered: while 6 states expanded before 2014 via waivers, 25 states and the District of Columbia initially opted in during 2014, with a total of 41 states having expanded by mid-2025.We use data from the National Financial Capability Study, a triennial survey conducted from 2009 to 2024. The survey collects rich information on financial capability indicators, healthcare access, financial resources, financial experiences and attitudes, as well as socioeconomic and demographic characteristics. Since its inception in 2009, the NFCS has surveyed a nationally representative sample of over 25,000 American adults in each wave. We supplement these data by appending state-level characteristics and policies. Our analysis focuses on low-income adults under age 65, the group for whom Medicaid expansion is most salient.Our research explores key indicators of individual financial well-being, including health insurance status, having an emergency fund, medical debt, and reliance on fringe financial services such as pawn shops and payday loans. We also focus on attachment to the banking system (having a bank account or credit card). By freeing up funds that may otherwise have been spent on health care, expansion may allow individuals to manage their finances better. We also have two measures of financial literacy: subjective (self-assessed) and objective (assessed from correct responses to standard questions). We analyze financial literacy to test two competing channels: the cognitive bandwidth hypothesis, where reduced financial stress improves decision-making, versus the reduced necessity hypothesis, where a stronger safety net diminishes the incentive for active financial monitoring. We further add to the literature by exploring the long-term persistence of these effects and investigating heterogeneity across demographic groups.Given the variation in expansion timing across states and survey waves, we identify these effects using a dynamic treatment model. Specifically, we employ the estimator developed by Callaway and Sant'Anna to account for potential treatment effect heterogeneity. However, since the fringe banking questions are asked with a five-year retrospective, we estimate the effect of expansion in a dose-response framework. In some specifications, we add high-income individuals as an additional control group. Pre-trend testing supports the validity of our identification strategy.Our preliminary findings indicate that Medicaid expansion increases the probability of having health insurance, decreases the probability of having medical debt, and increases the probability of being banked. We find no effect on the use of fringe banking products. Our preliminary results support the reduced necessity hypothesis, as some specifications indicate a decrease in financial literacy following expansion. This suggests that the expansion of the public safety net may alter the perceived returns to financial human capital investment. These findings may provide policymakers with evidence for designing effective interventions that promote long-term financial well-being for vulnerable families.

Author

• Julie K Smith, Lafayette College
  Presenting Author