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Medical Debt: An Unequal Burden

Medicaid expansion protects the financial health of working-class American families (Volume 10, Issue 30)

Prior to the Affordable Care Act (ACA), medical debt was a primary cause of bankruptcy. Debt resulting from medical expenses is a significant problem, as most people are ill-prepared for the financial shock resulting from a sudden illness. Payday loans are a source of fast cash for almost anyone in crisis;  twelve million Americans have taken out at least one payday loan. Americans making less than $40,000 are more likely to use payday loans, potentially getting trapped in a vicious cycle of debt.

There is a negative relationship between poverty, medical debt, and bad credit. A recent study examined the relationship between Medicaid expansion and payday lending in California. Using data from the Community Financial Services Association of America, the authors compared payday lending practices in 43 California early expansion counties to 924 non-expansion counties before and after Medicaid expansion (2009 to 2013). The study found an 11% decline in payday borrowing in counties that had expanded Medicaid compared to non-expansion countries. Greater declines were found among younger adults (18 to 35) and in areas with a higher share of uninsured people. Additionally, they found 277 (8%) fewer unique borrowers in expansion countries.

Medicaid expansion must remain a policy priority, particular among states that have yet to expand and states rolling back Medicaid expansion. Only 14 states have banned payday loans and 9 states have strict regulations. The lack of regulation in 27 states is problematic and given recent federal efforts to significantly cut Medicaid, it is now even more critical for states to protect working–class American families. Expanding Medicaid increases health coverage that can reduce the need for and burden of payday borrowing.

This Policy Prescriptions® review is written by Cirila Estela Vasquez Guzman, PhD. She is a Satcher Health Leadership Institute Fellow at Morehouse School of Medicine. She tweets @EstelaVasquezG.


We examined the impact of California’s early Medicaid expansion under the Affordable Care Act on the use of payday loans, a form of high-interest borrowing used by low- and middle-income Americans. Using a data set for the period 2009-13 (roughly twenty-four months before and twenty-four months after the 2011-12 Medicaid expansion) that covered the universe of payday loans from five large payday lenders with locations around the United States, we used a difference-in-differences research design to assess the effect of the expansion on payday borrowing, comparing trends in early-expansion counties in California to those in counties nationwide that did not expand early. The early Medicaid expansion was associated with an 11 percent reduction in the number of loans taken out each month. It also reduced the number of unique borrowers each month and the amount of payday loan debt. We were unable to determine precisely how and for whom the expansion reduced payday borrowing, since to our knowledge, no data exist that directly link payday lending to insurance status. Nonetheless, our results suggest that Medicaid reduced the demand for high-interest loans and improved the financial health of American families.

PMID: 28971922

Allen, H, et al. Health Affairs. 2017; 36 (10): 1769-1776.