CBO Explores Relationship Between Medicaid Spending on Children and Increased Earnings in Adulthood

The Congressional Budget Office (CBO) released a working paper exploring the short-and-long-term effects of Medicaid spending on children. Medicaid enrollment during childhood has been shown to correlate with increased earnings in adulthood. Those higher earnings imply greater tax revenues and lower future-reliance on public benefit programs that are funded by the federal government, like SNAP, Energy Assistance, TANF, or SSI. The paper, “Exploring the Effects of Medicaid During Childhood on the Economy and the Budget” compares the short-run cost of an additional year of Medicaid spending to the longer-term dynamic fiscal effects and potential savings.

Using their analytic framework and predictive model, the working paper estimates that the long-term fiscal effects of Medicaid spending on children could offset half or more of the program’s initial outlays. They project that children who gain (or lose) a year of Medicaid enrollment would earn approximately 0.5% more (or less) per year as adults compared with those whose Medicaid enrollment did not change. CBO also projects that the effects vary by the age and family income of the children who would lose Medicaid access – in particular, the effects are larger for children whose enrollment changes at younger ages and who are from lower-income families.

While the authors acknowledge that long-term projections could be influenced by many unknown factors and are an imperfect science, the results suggest that long-term cost savings would certainly offset some of the initial investment in services, although many offsets would begin accruing beyond the typical 10-year period used in conventional cost estimates. CBO is working to expand its capacity to assess long-term effects of these types of policies, which would significantly help inform decisions as policymakers explore options for expanding, continuing, or cutting investments in public assistance initiatives.