Financially burdened families' savings get a shot in the arm with access to Medicaid, according to a new study from CU Boulder, the
The paper appears in the upcoming edition of the
It found a family with little income, too many bills and no health insurance has little incentive or ability to save money. An unexpected medical bill, for example, could send them into bankruptcy, and any savings would be taken by their creditors. But put that family on Medicaid, the government's health coverage for the poor, and their calculation changes--Researchers found they start to save.
"Getting Medicaid eases the money squeeze and lessens the worry. Suddenly, a trip to the emergency room doesn't mean a trip to bankruptcy court. They see a chance to get a little ahead," said
The researchers plumbed data and survey results from 57,000 low-income people who filed their taxes online through the
Among people under financial stress, those with access to Medicaid reported trying to save
"Getting a little savings in the bank is vital as families try to dig themselves out of poverty," says Gallagher, who is also a fellow at the
One example is that tax preparation software providers use the tax filer's savings account as the default option when asking where to send their refund.
"It turns out, that for some households, Medicaid is a comparatively effective savings 'nudge,'" Sabat said.
The study builds on previous research indicating that families without health insurance use bankruptcy as a sort of high-deductible insurance plan. When they run up big medical bills, they go bankrupt. Their bills, and any savings above their state's bankruptcy exemption limit, are erased.
This new study found stressed families were less likely to save their refunds in states with low bankruptcy exemptions, where the bankruptcy court gets to keep more of their assets. But, given access to Medicaid, those same households reported a higher savings rate. The study showed Medicaid had three times the positive effect on the refund savings rate of financially stressed households in states where the bankruptcy exemptions are higher as compared to in states with a lower cost.
The research also found that low-income families that are further from contemplating bankruptcy are actively saving for future uninsured health shocks. With access to Medicaid, they limit what the researchers call "precautionary savings behavior."
While the most economically fragile households saw boosted savings with Medicaid, the study found no significant effect on the overall savings rate of low-income households.