On a present-value basis, CBO estimates that long-term fiscal effects of Medicaid spending on children could offset half or more of the program’s initial outlays, depending on sets of reasonable parameter values.
Summary
By Elizabeth Ash, William Carrington, Rebecca Heller, and Grace Hwang.
This paper examines the short- and long-term fiscal effects of Medicaid spending on children. In the short run, costs for Medicaid are paid upfront when the children (or their mothers) receive health care. In the long run, Medicaid enrollment during childhood has been shown to increase earnings in adulthood. Those higher earnings imply greater tax revenues and lower transfer payments by the federal government in the future. On a present-value basis, the Congressional Budget Office estimates that long-term fiscal effects of Medicaid spending on children could offset half or more of the program’s initial outlays, depending on sets of reasonable parameter values. That estimate is sensitive to the discount factor used to convert future effects to current dollars because long-term returns take over 70 years to fully materialize. The results are also sensitive to the predicted effect of Medicaid enrollment during childhood on earnings in adulthood (a parameter not known with precision) and to whether the changes in federal Medicaid spending come from noninvestment spending or from changes in federal borrowing.