There are many arguments as to why Medicaid is a good thing for children. Many studies have been done comparing outcomes for children with and without Medicaid. Many more have looked at how access to the health care system is different for kids with Medicaid.

But concerns about Medicaid, and arguments about whether to expand it, inevitably devolve to the cost. Implicit in that concern is whether it's "worth it" to have children on Medicaid. Are the benefits worth the cost? Might they be achieved by more efficient means? Perhaps money put into Medicaid could be used for other things.

Many of these discussions, however, ignore some of the potential long-term return on investment of the program for children. In a recent NBER paper, David Brown, Amanda Kowalski, and Ithai Lurie attempted to get at that question. "Medicaid as an Investment in Children: What is the Long-Term Impact on Tax Receipts?":

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.

Does enrollment in Medicaid or SCHIP have a long-term return on investment? First the researchers used data from the IRS to figure out health insurance eligibility for kids so that they could examine their later outcomes when they were adults. They created a simulation of children with different levels of eligibility and found that kids with more eligibility paid more money in taxes by the time they were 28. That's a fiscal positive return for the government. They also found that these children took less from the government in terms of EITC payments.

In other words, children eligible for Medicaid or SCHIP were more "productive" members of society. They paid more in taxes and took less in entitlements.

Going further, they calculated that the government spent $872 in 2011 dollars for each year of Medicaid eligibility added in the expansion for kids. They estimated, though, that the government would likely get 56% of this investment returned to them (including discounting) by the time those kids hit 60 years of age.

And that doesn't take into account changes in mortality or college attendance. If more kids grow up to become earners, and potentially better earners, that's better for tax receipts, too. And it turns out that increased Medicaid eligibility is associated with both of these things as well. Moreover, not all eligible children make use of the program. Therefore, the ROI per actual beneficiary may be even higher.

Sure, it's not all returned to the government. But Medicaid and SCHIP aren't meant to be cost-saving. They're providing increased access, and hopefully better health outcomes, to children - for a price. But that price may be less than people think, if we account for returns on investment for the programs.


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