There is a recent NBER paper making the wonkosphere rounds. It finds that the expansion of Medicaid eligiblity to larger pools of children have produced significant long run positive tax transfers back to the federal government. Those transfers don’t cover the entire cost of providing medical care to poor and near poor kids but they greatly reduce the program price if Medicaid expansion was to be dynamically scored.
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 Statisticalinformation 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.
The study only looks at the net present value of increased federal tax collection. It neglects from its scope of consideration any benefits captured by the individual.
Thining extemperaneously, I think there are three things that could be driving the higher wages and thus higher taxes over the long run.
1) An income substitution effect. Medicaid always covered the poorest of the poor children, but since the mid-80s, Medicaid and later CHIP have been moving to cover more kids a little higher up the income scale each time it expanded. At some point, an additional dollar of Medicaid resources displaces a dollar that the family would have spent on medical care. That displaced dollar or fraction of a dollar could have been spent on something else that has long run pay-offs (better education, better food, more stability and predictability in formative years to produce “grit” etc)
2) Better health makes finding and keeping a job a whole lot easier. Better health makes it easier to do well in school as that pain in the leg has been taken care of instead of festering for another month or two untreated. Better health means an ability to shift attention and thought to non-health matters.
3) Better health is a social signal of respectability. People quickly judge others by their teeth, by their walk, by hundreds of subtle and not so subtle signals of class. Early childhood Medicaid might remove some negative signals.
What say ye?