Medicaid as an Investment in Children: What is the Long-Term Impact on Tax Receipts?

39 Pages Posted: 12 Jan 2015

See all articles by David Brown

David Brown

U.S. Department of the Treasury, Office of Tax Analysis (OTA)

Amanda Kowalski

University of Michigan at Ann Arbor - Department of Economics

Ithai Lurie

U.S. Department of the Treasury, Office of Tax Analysis (OTA)

Multiple version iconThere are 2 versions of this paper

Date Written: January 2015

Abstract

We examine the long-term impact of expansions to Medicaid and the State Children's Health Insurance Program that occurred in the 1980's and 1990's. With administrative data from the IRS, we calculate longitudinal health insurance eligibility from birth to age 18 for children in cohorts affected by these expansions, and we observe their longitudinal outcomes as adults. Using a simulated instrument that relies on variation in eligibility by cohort and state, we find that children whose eligibility increased paid more in cumulative taxes by age 28. These children collected less in EITC payments, and the women had higher cumulative wages by age 28. Incorporating additional data from the Medicaid Statistical Information System (MSIS), we find that the government spent $872 in 2011 dollars for each additional year of Medicaid eligibility induced by the expansions. Putting this together with the estimated increase in tax payments discounted at a 3% rate, assuming that tax impacts are persistent in percentage terms, the government will recoup 56 cents of each dollar spent on childhood Medicaid by the time these children reach age 60. This return on investment does not take into account other benefits that accrue directly to the children, including estimated decreases in mortality and increases in college attendance. Moreover, using the MSIS data, we find that each additional year of Medicaid eligibility from birth to age 18 results in approximately 0.58 additional years of Medicaid receipt. Therefore, if we scale our results by the ratio of beneficiaries to eligibles, then all of our results are almost twice as large.

Suggested Citation

Brown, David and Kowalski, Amanda and Lurie, Ithai, Medicaid as an Investment in Children: What is the Long-Term Impact on Tax Receipts? (January 2015). NBER Working Paper No. w20835, Available at SSRN: https://ssrn.com/abstract=2548354

David Brown

U.S. Department of the Treasury, Office of Tax Analysis (OTA) ( email )

1500 Pennsylvania Ave., N.W.
Washington, DC 22203
United States

Amanda Kowalski

University of Michigan at Ann Arbor - Department of Economics ( email )

Ann Arbor, MI
United States

Ithai Lurie

U.S. Department of the Treasury, Office of Tax Analysis (OTA) ( email )

1500 Pennsylvania Ave., N.W.
Washington, DC 22203
United States

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