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Will Obamacare improve your credit?

Kelly Dilworth

If you’re uninsured and still waiting to sign up for health insurance coverage through the Affordable Care Act’s online marketplace, you may want to step on it.

New research published by the Federal Reserve Bank of Chicago shows that signing up for health insurance coverage may not only protect you from financial disaster, such as an unexpected trip to the emergency room. It may also boost your long-term credit history.

“A major benefit of health insurance coverage is that it protects the insured from unexpected medical costs that may devastate their personal finances,” wrote study authors Bhashkar Mazumder and Sarah Miller in a working paper released Jan. 30.

Will Obamacare improve your credit?

In addition, the study found, signing up for health insurance reduces the likelihood that you’ll fall victim to smaller credit disasters that can have long-term consequences for your financial health — such as falling behind on a loan payment or racking up medical debt on a credit card.

Financial benefits of health care reform
The authors came to their conclusion after studying the credit reports of consumers living in Massachusetts, which has its own health care reform law.

Since 2007, Massachusetts residents have been required to carry health insurance, either through an employer or a private plan, or face a financial penalty. As a result, enrollment in health care plans spiked. According to the Census Bureau, more than 95 percent of Massachusetts residents now carry some type of health insurance.

Since the law was enacted in 2006, Mazumder and Miller found that the credit health of many Massachusetts residents has significantly improved — thanks in part to affordable health care access. “Our results indicate that public policies that expand health insurance do have pronounced effects on financial stability and well-being,” wrote Mazumder and Miller.

For example, according to the study, near-universal health insurance leads to:

  • Higher average credit scores. On average, consumers in Massachusetts enjoyed slightly higher credit scores soon after the law went into effect. 
  • Less overdue debt. Consumers also carried less overdue debt after the law was enacted. In addition, the percentage of overdue debt consumers carried, compared to their total credit balances, also fell. 
  • Fewer missed payments. Delinquencies on loans higher than $5,000 also became less common. The law didn’t appear to have an effect on small-dollar delinquencies, however.
  • Fewer bankruptcies. In addition, people became much less likely to declare bankruptcy after the law was passed.

“Furthermore, our analysis yields some suggestive evidence that the reform may have also reduced total debt and the amount of third-party collections,” wrote Mazunder and Miller.

That could have significant implications for the long-term impact of the nationwide Affordable Care Act, which was based in part on the Massachusetts health insurance law. As University of Illinois law professor Pamela Foohey wrote Feb. 4 in a related blog post on Credit Slips: “These results highlight a few potential effects of the ACA: increased household financial stability, increased access to more affordable credit and better debt collection outcomes for creditors.”

Your bottom line: Signing up for health insurance significantly reduces your chances of having your long-term financial health wrecked. It also makes it less likely that you’ll ding your credit score because of an unexpected medical bill that you cannot afford to pay.

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