In the 1980s, Congress passed a series of expansions to Medicaid that provided significant expansions of health insurance coverage to children born on Oct 1, 1983 or later. Card and Shore-Sheppard (2004), use this discontinuity in eligibility to estimate the causal effect of this Medicaid expansion to children on healthcare utilization during childhood. In subsequent work, Wherry et al. (2018) use this variation to look at later-life healthcare utilization and prevalence of chronic health conditions, and Wherry and Meyer (2016) look at later life mortality. Hendren and Sprung-Keyser (2020) translate the available estimates into their implied MVPF.

Pays for Itself

The cost of providing Medicaid to non-disabled children in 1991 was roughly $902 per year per enrolled child in 1991 USD (Wherry et al. (2018)). Hendren and Sprung-Keyser (2020) translate this to $1,484 in 2012 US dollars using the CPI-U-RS. For those obtaining insurance eligibility through the expansion, 44.6% take up Medicaid. This implies a cost per child-year of Medicaid eligibility of $663. Hendren and Sprung-Keyser (2020) assume this cost is spread uniformly over ages 8 through 14, and discount to back to age 8 using a 3% interest rate, which gives a discounted cost of $528.

Part of the cost paid by the government reflects compensation for care that otherwise would have gone uncompensated. Lo Sasso and Seamster (2007) use variation in childhood expansions of Medicaid to document that each additional child eligible for Medicaid reduces costs by $17 through both reductions in charity care and default on medical debt. The discounted value of these savings over the seven years of increased eligibility is $13.67. Assuming this falls to the government, it implies the net cost of eligibility to the government is $645 per year per child.

Wherry et al. (2018) revisit the birth discontinuity to look at health outcomes when children are 25 years old. They find significant reductions in chronic health conditions and healthcare utilization such as hospitalization and emergency room visits. Those born just after Sept 30, 1983 are 7.7 percentage points more likely to be covered (Wherry et al. (2018) Table 2). Correspondingly, they find significant reductions in hospitalization and prevalence of chronic conditions. Using the CCT bandwidth selector, Appendix Table 24 shows that being born after the Sept 30 cutoff leads to a 0.164 reduction in log costs of publicly insured hospitalizations and 0.049 reduction in log costs of publicly insured emergency department visits.

Translating these reductions into the dollars recouped by the government requires the base levels of public spending on these populations. Using the summary statistics from the paper, the authors’ calculations imply a total average cost of hospitalizations of $402 per year and $231 for emergency room expenses in 2012 USD. While the authors do not have a breakdown of the total costs paid by the government, Wherry et al. (2018) estimate that between 41-69% of total costs for this sample are paid by the government – Hendren and Sprung-Keyser (2020) take the midpoint of 55%. This suggests public expenditures of $221 on hospitalizations and $127 on emergency room costs per person per year. Multiplying by the 16.4% and 4.9% reductions, respectively, yields a total cost savings to the government of 36.25+6.24 = $42.49 (2012 USD) per person per year. Discounting these increased revenues back to the time when the initial outlays were made (when children were 8 at the earliest) yields a total cost savings of $26 using a 3% discount rate. These cost savings compare those born Oct 1 versus Sept 30, 1983 to those born just before. This discontinuity corresponds to a 0.87 increase in child-years of eligibility for Medicaid. This suggests that the discounted cost savings per year of Medicaid eligibility are $30 when individuals are 25 years old.

Because these reductions in expenditures are argued to be driven by reductions in chronic conditions that persist over time, their baseline specification assumes these effects persist as the individuals age. To account for this, Hendren and Sprung-Keyser (2020) assume that cost savings remain constant in levels, despite the growth in costs over the age distribution. Hendren and Sprung-Keyser (2020) then discount these back to age 8 using the real interest rate assumption of 3% for their baseline specification. For consistency with the earnings forecasts, Hendren and Sprung-Keyser (2020) assume the cost savings persist until age 65. But, their results suggest that the cost savings to government pays for itself by the time children are age 54.

In addition to impacts on future health costs, there could also be impacts on future earnings and tax revenue. Hendren and Sprung-Keyser (2020) make the arguably conservative assumption of no impact on earnings. They motivate this choice using estimates from Brown et al. (2015) who use administrative tax data to compute the mean tax revenue for children in their 20s and early 30s separately by birthday around the Sept 30 1983 threshold. Hendren and Sprung-Keyser (2020) note that Appendix Figure OA.3 reveals no significant changes in tax revenue around the discontinuity, although this test is potentially under-powered because it is not possible to zoom in on potentially eligible children.

-$105.1
Net Cost

239.9 Upper Margin
-425.4 Lower Margin

Hendren and Sprung-Keyser (2020) incorporate two components of willingness to pay. First, as noted above, cost of providing Medicaid to non-disabled children in 1991 was $1,484. Scaling by the take-up rate (44.6%), the cost of eligibility is $663. Spreading out the average gain in eligibility over ages 8 to 14 and discounting associated costs back to age 8 suggests that the discounted costs of eligibility gains and the uncompensated care costs sum to $528 and $14, respectively. Scaling the costs of eligibility by the moral hazard rate (0.6) and subtracting off uncompensated care costs yields the valuation of the insurance at its mechanical program cost. The corresponding discounted value is $317.

Next, Wherry and Meyer (2016) use the Oct 1, 1983 birth discontinuity to estimate the causal effect on childhood Medicaid eligibility on later-life mortality as children and teenagers. They find that the annual mortality rate for Black children born after September 30,1983 is lower than for those born after the cutoff by 0.443 per 10,000 children between the ages of 15 and 18. Assuming a value of a statistical life of $1M, the value of the mortality reductions in each of these years is $44. Discounting and aggregating the mortality reductions over ages 15-18 back to age 8 (the earliest age of when the Medicaid investments are made) suggests a willingness to pay of $138. Combining with the medical spending reductions yields a willingness to pay of $454, which provides their point estimate for the willingness to pay in their baseline specification.

In the process, Hendren and Sprung-Keyser (2020) ignore two additional likely benefits of the policy that could be incorporated in future work. First, the insurance likely provides an insurance value to the parents beyond the transfers value. Second, Wherry et al document a significant reduction in chronic health conditions for children as young adults. Children’s willingness to pay for these improvements would further increase their willingness to pay, and the MVPF, which Hendren and Sprung-Keyser (2020) do not include.

$454.5
WTP

978.9 Upper Margin
63.7 Lower Margin

Combining these estimates, their results suggest an infinite MVPF with a fairly wide 95% confidence interval of [0.26, \infty], so that one cannot reject an MVPF of 1, despite the point estimate suggesting the policy pays for itself.

MVPF

0.3 Lower Margin

Brown, David W., Amanda E. Kowalski and Ithai Z. Lurie (2015), “Medicaid as an Investment in Children: What Is the Long-Term Impact on Tax Receipts?” Working Paper 20835, National Bureau of Economic Research. DOI: https://doi.org/10.3386/w20835

– Revised version: https://www.restud.com/paper/long-term-impacts-of-childhood-medicaid-expansions-on-outcomes-in-adulthood/

Card, David and Lara D Shore-Sheppard (2004). “Using Discontinuous Eligibility Rules to Identify the Effects of the Federal Medicaid Expansions on Low-Income Children.” Review of Economics and Statistics, 86(3), 752-766. DOI: https://doi.org/10.1162/0034653041811798

Lo Sasso, Anthony T. and Dorian G. Seamster (2007). “How Federal and State Policies Affected Hospital Uncompensated Care Provision in the 1990s.” Medical Care Research and Review, 64(6),731-744. DOI: https://doi.org/10.1177/1077558707305940

Wherry, Laura R. and Bruce D Meyer (2016). “Saving Teens: Using a Policy Discontinuity to Estimate the Effects of Medicaid Eligibility.” Journal of Human Resources, 51(3), 556-588. DOI: https://doi.org/10.3368/jhr.51.3.0913-5918R1

Wherry, Laura R., Sarah Miller, Robert Kaestner and Bruce D. Meyer (2018). “Childhood Medicaid Coverage and Later-Life Health Care Utilization.” Review of Economics and Statistics, 100(2), 287-302. DOI: https://doi.org/10.1162/REST_a_00677

- Category
- Social Insurance
- Sub-Category
- Child Health
- Beneficiary Type(s)
- Children and Youth, Children under five
- Average Age
- 11
- Average Income
- 21339
- Country of Implementation
- United States
- Year of Implementation
- 1990
- Empirical Method
- Regression Discontinuity
- Research Type
- Secondary
- Peer Reviewed
- Yes
- MVPF Publication Link
- academic.oup.com/qje/article/135/3/1209/5781614