The Lasting Effects of Health Insurance: Child Outcomes and Parental Responses to Changes in Eligibility

It has become increasingly clear that early childhood circumstance is important in determining later-in-life outcomes.  Many factors, including maternal time, health, and family income during childhood, have been shown to be important predictors of adult outcomes, such as health, education, employment, and earnings.  Due to the importance of inputs during the beginning stages of the life cycle, childhood interventions may be a significant determinant of later-in-life outcomes.  For low income children, one of the largest interventions is Medicaid, which provides public health insurance.  This paper shows that access to health insurance during childhood has lasting effects.  Further, it documents the response of parental investments when there is a change in access to health insurance. 

I build an intuitive model that illustrates different channels through which health insurance during childhood could affect later-in-life outcomes.  This happens because inputs in the child production function change.  Specifically, by subsidizing the price of health care, insurance changes the price of inputs into the child production function.  There are two main mechanisms responsible for the lasting effects of insurance: a change in parental labor supply and a change in parental investments.  To test the implications of the model, I use the Medicaid expansions of the late 1980s and early 1990s.  These series of expansions greatly increased the set of children who were eligible for Medicaid and provide exogenous variation in eligibility, making Medicaid the natural setting to study the effects of health insurance. 

To estimate the long term effects, I use two main data sources: the Children of the National Longitudinal Survey of Youth (CNLSY) linked with information about eligibility.  The CNLSY is particularly well suited to answer the question of how health insurance affects later-in-life outcomes, because children can be linked to the mother, giving me a rich set of family characteristics during childhood.  It also allows me to observe how mothers reacted to the increase in eligibility.  Further, the CNLSY is a long panel, allowing me to link adult outcomes with childhood eligibility.  Because the children affected by these reforms were born in the 1980s, the long term effects are just starting to manifest themselves in adult outcomes. 

I find that Medicaid eligibility had lasting effects that are heterogeneous across the education of the mother.  For example, children whose mother did not graduate high school were made better across almost every dimension, including a decrease in teen pregnancy and the probability of being jailed before age 25.  This happens because health insurance allows the parents to increase health investments and to reallocate resources to goods investments.  However, children whose mother is in the middle of the education distribution do not realize these same gains.  This happens because households whose family income is close to, but above the threshold for eligibility, decrease their labor supply in order to be eligible for Medicaid.  The increased time spent with the child is offset by the shift in family budget constraint.  Not surprisingly, children whose mother is highly educated were not affected by the Medicaid expansions.