Helping Poor Children Today Can Pay Big Dividends Tomorrow

Medicaid recipients later earn more, live longer, researchers find.

ByColumn By Lee Dye
January 18, 2015, 12:31 PM
PHOTO: Medicaid has a positive effect on the economy in the long run according to a new study by a Yale University economist and analysts with the U.S. Treasury Department.
Medicaid has a positive effect on the economy in the long run according to a new study by a Yale University economist and analysts with the U.S. Treasury Department.
KidStock/Getty Images

— -- A unique, huge study has found that when taxpayers help children in low income families live healthier lives those same children grow up to be more successful adults, thus paying more taxes that partly offset the cost to the government.

A Yale University economist and analysts with the Treasury Department teamed up to determine just what effect Medicaid -- the federal and state program that provides health care assistance to poorer families -- had throughout the lives of the recipients.

The massive study turned up three surprising findings:

"We were surprised and excited to find these results," economist Amanda Kowalksi of Yale, one of the study's three principal authors, said in a telephone interview. "We thought that if you invest in children's health, they might be more likely to do better in school and potentially go to college. But you really need a huge sample size to be able to detect anything like that."

And huge is what they had.

The study is based on an analysis of tax returns for nearly all of the 14.6 million Americans born from 1981 to 1984 during a large expansion of the Medicaid program.

Because of the cooperation of the university and the federal government, the researchers were able to follow millions of children until they reached the age of 28. Thus they could track each child into their working years though their federal income tax returns.

"You mean you were able to follow 8-year-old little Billy until he became big Billy with a well-paying job?" I asked Kowalski. "Exactly," she said, and then quickly qualified that answer.

"I'm a professor at Yale, so I couldn't have access to that personal data," she said. "My coauthors made this study possible."

Her coauthors are David W. Brown and Ithai Z. Lurie of the Treasury Department's Office of Tax Analysis. They were able to compile data from tax returns that are considered too private for public exposure and use that data to draw general conclusions.

During the first years of their working lives, the average worker who received Medicaid assistance as a child paid more in income taxes as an adult than children with a similar background who did not receive aid. By the age of 28, they were returning 14 cents of every dollar that they had received through Medicaid.

Assuming that trend continued, they would have paid 56 cents on each dollar by the age of 60. And those numbers are considered conservative, according to the researchers.

That still leaves the government holding the bag for a large share of the costs, but Kowalski noted that government assistance programs are based on need, not the expectation of a full return of the investment.

Kowalski said she and her colleagues are confident that their findings amount to more than a correlation of events. They show that Medicaid was the cause of higher earnings, more education and healthier lives.

They base that on their ability to create two samples, one made up of Medicaid recipients, and the other composed of children raised in similar families and financial circumstances. Since states primarily set the eligibility standards for their areas, it was possible to find families that were just as poor as families receiving Medicaid, but who did not qualify in the area in which they lived.

Thus they ended up with two huge, equally poor, but similar groups, one of which received aid and the other did not. The study concludes that the Medicaid group did significantly better throughout the succeeding years.

The study was done partly because the nation is now involved in a third major expansion of Medicaid and this one will change the complexion of the program significantly. More adults are eligible now, although that does not apply to residents of states that opted out of the expansion.

Extending Medicaid under the Affordable Care Act will increase the cost to the federal government, according to researchers at Pennsylvania State University, because more of the recipients are older and prone to more expensive health problems. And the federal government foots more of the bill, nearly all of it through 2016, and then gradually reducing that amount to 90 percent.

Another study from the University of Michigan suggested even more changes in the composition of Medicaid recipients under the Affordable Care Act. More of them are white, in generally good health with less prevalence for obesity, but they are more likely to be smokers and heavy drinkers.

Kowalski said she is confident that her findings will still apply, even though more recipients will be older than the children in her study, because some assistance, especially in health care, will continue to provide long-term benefits to the children who receive it.

And the study also contends that down the road, they will pay a lot of it back.

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