Medicaid Expansion and Payday Lending: Evidence from Louisiana

Abstract: Medicaid eligibility expansions improve financial well-being, but their effects on non-traditional credit use remain understudied. We examined changes in payday loan use among individuals gaining coverage through Louisiana’s 2016 Medicaid expansion, compared with individuals in high-uninsurance ZIP Codes in Southern non-expansion states. Gaining Medicaid coverage was associated with lower payday loan origination amounts and a sharp decline in the share of loans sent to collection agencies. However, we found no effect on the number of loans per borrower, or the share of loans charged off. Our findings suggest that Medicaid coverage reduces reliance on payday loans, financial products with high interest rates and short repayment terms that contribute to financial hardship, and highlights Medicaid expansion’s potential to improve financial well-being for low-income populations.