Low-income people with Medicaid coverage go to the doctor more regularly, have reduced financial stress and generally report feeling happier and healthier than their uninsured cohorts who must depend on safety net services like free clinics or emergency rooms to access care—or forgo it altogether. This may seem obvious, but until the release today of what one expert calls an “historic” working paper published on the website of the National Bureau of Economic Research, there was little evidence to back up the oft-stated benefits of extending affordable coverage to the uninsured.

James Smith, an economist at the RAND Corporation, told the New York Times “It’s obviously a really important paper…It is going to be a classic.”

The study grew out of an unusual state lottery conducted in Oregon in 2008 that added 10,000 additional low-income, uninsured adults (living at 100% of the poverty line) to its Medicaid program—Oregon Health Plan Standard. In 2002, at its peak, OHP Standard had 110,000 people enrolled. But facing budget shortfalls, the state capped enrollment in 2004 and by 2008, only 19,000 adults remained—the rest lost to attrition. That’s when Oregon received a federal waiver to hold the computerized lottery to expand the plan. A total of about 90,000 people applied for the 10,000 openings.

As a side benefit, the lottery system set up the perfect conditions for conducting the “gold standard” of scientific research; a randomized controlled trial. With funding coming primarily from the National Institute on Aging, researchers spent a year collecting data from hospital records, mail surveys and other sources. They compared outcomes in those low-income adults randomly selected to receive Medicaid coverage to outcomes in the applicants who remained uninsured.

Their findings were irrefutable: “expanding low income adults' access to Medicaid substantially increases health care use, reduces financial strain on covered individuals, and improves their self-reported health and well-being,” according to the paper. Specifically, adults with insurance coverage were 55 percent more likely to visit a doctor, 30 percent more likely to be admitted to the hospital and 15 percent more likely to take prescription drugs, according to the NBER paper. There were also measurable gains in use of preventive services; with a 60% increase in women over 40 having a mammogram, a 45% greater likelihood of having a pap test and a 20% greater chance of having blood pressure checked. The impact of insurance on mortality rates and use of emergency rooms were not significant in this particular study.

Having insurance also had a real impact on the financial health of the low-income adults newly covered by Medicaid: They experienced a 25 percent decline in having unpaid medical bills sent to a collection agency and a 35 percent decline in out-of-pocket medical expenditures. For individuals whose income is below $11,000/year, these financial impacts are substantial and helped reduce stress.

Why is this research so important? The National Bureau authors note that in 2011, “fewer than half of the states offered Medicaid coverage to able-bodied adults with income up to 100 percent of poverty.” Facing budget crises that are even more severe than Oregon’s 2004 shortfall, many states are looking to trim their Medicaid rolls even further or to reduce benefits and reimbursements to providers—among other cost-saving measures. Medicaid is increasingly becoming the target for conservatives at the federal level too, with some legislators calling for a bill to create waivers that would allow states “flexibility” to cut their benefits and others clamoring to turn Medicaid into a block grant program.

Conservatives are in a rush to secure this “flexibility” because starting in 2014, the Patient Protection and Affordable Care Act calls for a mandatory expansion of Medicaid eligibility to all Americans who earn up to 133 percent of the federal poverty level. This expansion, funded for the first year completely by the federal government, is expected to provide an additional 16 million of the uninsured with coverage and to improve the nation’s health while keeping poorer Americans out of the costly and over-burdened safety net system.

The NBER working paper provides clear evidence that having insurance will benefit the poor. And more specific measures of how coverage impacts health are expected to be published in the months ahead. Two years after the lottery process was completed, the researchers conducted in-person interviews and health exams on a subset of their study population—12,000 residents of the Portland metropolitan area (6,000 with Medicaid, 6,000 without). According to the authors, “Results from those data should help shed light both on the longer-run impacts of insurance coverage, and on the impact of insurance on more objective measures of physical health, including biometric measures” like diabetic blood sugar, cholesterol, weight and blood pressure.

According the New York Times, Katherine Baicker, professor of health economics at the Harvard School of Public Health and one of the principle investigators on the study who interviewed people from this subset “was impressed by what she heard.”

‘Being uninsured is incredibly stressful from a financial perspective, a psychological perspective, a physical perspective,’ she said. ‘It is a huge relief to people not to have to worry about it day in and day out.’”

The quality of life and health improvements are encouraging; but the Oregon study found that they came at a financial cost. The researchers determined that adults newly covered by Medicaid spent 25% more on health care in a year than those without insurance. This raises the sticky issue of “moral hazard;” the idea that people with health insurance are insulated from the true cost of care and therefore end up using more of it. For all the exhortations about how prevention and access to care saves money—catching health problems before they become serious and expensive to treat, for example—the truth is that at least in the short-term, people with Medicaid coverage utilize the system more than those who don’t. What then are the economic benefits—or lack thereof—of expanding coverage to the poor?

The NBER authors declined to make predictions from their study:

“One could compare the cost of public funds from Medicaid expenditures on the newly insured as well as the moral hazard cost of increased utilization to the benefits from reduced financial strain and from improved self reported health. However monetizing the costs, and especially the benefits, would require – and likely would be quite sensitive to – a number of assumptions; we consider this beyond the scope of the current paper.”

It is important that researchers do continue to work on “monetizing” the costs and benefits of expanding Medicaid coverage to more of the poor. As states frantically slash at social services and entitlement programs, such considerations will be increasingly important. Without evidence (similar to the excellent Oregon study) to back up the economic benefits of the coming Medicaid expansion, the country’s commitment to the embattled program will remain shaky. Will it matter to Texas or Arizona that its poor residents will be “happier,” feel healthier, get admitted to the hospital more and visit the doctor more if they are covered under Medicaid? As harsh as it seems, probably not.

What would matter to conservatives—who see Medicaid as a program they can cut with little fear of political fallout—is evidence that providing affordable insurance for all will at least be "cost-effective". We’ve all heard the logic, many of us embrace it: Poor people without insurance seek out care in the emergency room where it is most expensive, they don’t go to the doctor until they are already very ill (and it costs more to treat them), and hospitals provide billions in uncompensated care to them (that is, ultimately, reimbursed by taxpayers.)

The idea that having insurance will ultimately save money, like the (untested until now) notion that having insurance is beneficial to the health and well-being of low-income Americans, seems obvious in the long-run. But as the Oregon study authors point out, it may be more complicated than that.

What we do know is that if you add people to the Medicaid rolls, it will cost money. And, as Kevin Drum points out in Mother Jones, it may not even do something really obvious like increase life expectancy. “You may not live much longer if you have health coverage, but guess what? Your life is going to be a lot better. You're less likely to lose your teeth, less likely to be in pain, less likely to be incapacitated with chronic illness, and more likely to receive treatments that demonstrably improve your quality of life.”

He continues, “And the economic peace of mind that even a modest program like Medicaid provides? That's yet another bonus. It's the least — literally the least — that a rich country can provide for its poorest residents.”