• Medicaid’s return on investment

    It’s time to face the fact that I’m not going to be able read, let alone write a full post on every interesting looking paper in my pile. But you’re hungry for content and want to know what’s potentially worth reading, right? So, expect a few posts that are little more than abstracts of papers I’ve at most skimmed. Maybe they contain a fatal flaw. Maybe they’re awesome. I just don’t have time to find out. Take with a grain of salt.

    Medicaid as an Investment in Children: What is the Long-Term Impact on Tax Receipts?” by David Brown, Amanda Kowalski, and Ithai Lurie:

    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 twice as large.

    So maybe, all in, Medicaid could be break even. Maybe. (Yes, this is the pure economist point of view, as if lives and quality thereof can be easily, unambiguously converted to dollars. And, yes, the framing here suggests — though does not demand — that things are worth doing only if they pay for themselves, which is ridiculous. Good things are worth spending money on.)


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