Health Affairs, 23, no. 5 (2004): 131-141 doi: 10.1377/hlthaff.23.5.131 © 2004 by Project HOPE	New Online   McAllen, TX & Beyond: An Expert Roundtable   Geography & Reform   Medicaid or Insurance Exchange?   Siren Song of New GME   Public Plan Option: Pro & Con

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Investing In Children

Generational Differences In U.S. Public Spending, 1980–2000

Abstract

 
The balance between spending on children and spending on the elderly is important in evaluating the allocation of public welfare spending. We examine trends in public spending on social welfare programs for children and the elderly during 1980–2000. For both groups, social welfare spending as a percentage of gross domestic product changed little, even during the economic expansions of the 1990s. In constant dollars, the gap in per capita social welfare spending between children and the elderly grew 20 percent. Unlike spending for programs for the elderly, spending for children’s programs suffered during recessions. Public discussion about the current imbalance in public spending is needed.

In comparison with other countries, social indicators for U.S. elders are quite good, whereas indicators for children are poor, and evidence suggests that social welfare spending can, to some extent, reduce poverty.³ Despite recent declines, U.S. child poverty rates are among the highest in the world.⁴ Over the past twenty years, the absolute number of children living in poverty has been nearly three times the number of elderly living in poverty, and poverty rates for children have consistently exceeded those for the elderly (Exhibit 1).⁵ In spite of these discrepancies, recent and anticipated increases in the number and proportion of U.S. elderly have been accompanied by a "graying" of the federal budget.⁶ For example, the 2004 Medicare trustees’ report projects that Medicare spending will grow from 2.6 percent of gross domestic product (GDP) in 2003 to 7.75 percent in 2035.⁷ In contrast, U.S. social spending devoted to children, including health care, is among the lowest in the world.⁸

View larger version (22K): [in this window] [in a new window]   EXHIBIT 1 Percentage Of U.S. Children And Elders Living In Poverty, 1980–2000

Study Data And Methods

Top Study Data And Methods Findings Discussion Editor's Notes NOTES

 
Methods. Following the approach of Benjamin and colleagues, we examined the major components of public social welfare spending that directly benefit children and the elderly.¹⁰ Generally, we considered children to be those younger than age eighteen, and the elderly, those older than age sixty-five. For programs that directly benefit children, we included primary and secondary education (K–12), Aid to Families with Dependent Children (AFDC) and Emergency Assistance/Temporary Assistance for Needy Families (TANF), other child welfare, nutritional support, maternal and child health programs, medical spending under Medicaid and the State Children’s Health Insurance Program (SCHIP), and those portions of Social Security payments (Old Age, Survivors, and Disability Insurance [OASDI] and Supplemental Security Insurance [SSI]) that benefit children. For programs that directly benefit the elderly, we included medical spending under Medicare and Medicaid, Older Americans Act expenditures, veterans’ and railroad workers’ pensions, and those portions of Social Security (OASDI and SSI) and food stamps that benefit the elderly.¹¹ Private social welfare expenditures, such as those from philanthropic organizations, and indirect social welfare benefits, such as those provided through the tax system, were not included. In cases where data sources were discrepant or not up to date, we contacted the relevant government agency and individuals responsible for producing annual statistical reports to obtain the most recent and accurate data. Total social welfare spending was calculated as the sum of all relevant components for both groups.

Expenditures were adjusted to 2000 U.S. dollars using the medical component of the Consumer Price Index (CPI) for Medicaid, Medicare, and SCHIP and the overall CPI for all other programs.¹² National economic trends were classified as follows: 1980–1984 recession, 1985–1989 growth, 1990–1994 recession, and 1995–2000 expansion. Unlike expansion, inflation is present during periods of growth. To relate changes in per capita spending to national economic trends, percentage changes were calculated for each time period.¹³ Per capita social welfare spending for children and that for the elderly were analyzed separately.

Data sources. Data on primary and secondary education are from the 2001 Digest of Education Statistics and the National Center for Education Statistics.¹⁴ Data on TANF/AFDC, Social Security, SSI, and veterans’ pensions are from the U.S. Department of Health and Human Services (HHS) Social Security Administration and Department of Veterans Affairs.¹⁵ Railroad retirement and Older Americans Act data are from the U.S Railroad Retirement Board and volumes compiled for the U.S. House of Representatives Committee on Aging.¹⁶ Data on food stamps; Women, Infants, and Children (WIC); and child nutrition are from the U.S. Department of Agriculture.¹⁷ Data on other maternal and child health programs and child welfare are from the HHS Administration for Children and Families. Medicaid, SCHIP, and Medicare data are from the Centers for Medicare and Medicaid Services (CMS). Poverty and population data are from the U.S. Bureau of the Census. CPI, medical CPI, and GDP data are from the Bureau of Labor Statistics.

Findings

Top Study Data And Methods Findings Discussion Editor's Notes NOTES

 
Distributional spending. The distribution pattern of social welfare spending on children and the elderly changed little from 1980 to 2000 (Exhibit 2). Education constituted the bulk of public spending for children over this period; it grew from 70.3 percent of total social welfare spending on children in 1980 to 81.2 percent in 2000. Children’s income assistance provided through AFDC (renamed TANF in 1996) represented the second largest portion. The decline in the relative proportion of funds devoted to income assistance and in the real dollar value of total spending in this area occurred predominantly after the passage of the 1996 PRWORA (Exhibit 3).¹⁸ There were declines in total food-stamp spending on children after 1996 and in the real dollar value of monthly food-stamp benefits. For the elderly, Social Security and Medicare represented the majority of social welfare spending distribution from 1980 to 2000, and spending in both areas grew consistently.

View larger version (20K): [in this window] [in a new window]   EXHIBIT 4 Social Welfare Spending On Children And Elders, As Percentage Of GDP, 1980–2000

View larger version (26K): [in this window] [in a new window]   EXHIBIT 5 Per Capita Social Welfare Spending On Children And Elders, 1980–2000

Increases in spending on children through Medicaid and food stamps made up for declines in other areas. In the recession of the early 1990s, differences between per capita public spending on children and the elderly increased as growth of spending on children failed to keep pace with that for the elderly. During this recession, real total per capita total social welfare spending on children grew 6.0 percent; on elders, 7.7 percent.

During the recent economic expansions of the late 1990s, total per capita social welfare spending rose 9.4 percent for children and 2.9 percent for the elderly. However, spending on children through AFDC and TANF dropped precipitously after passage of the 1996 PRWORA. At the same time, although medical spending on the elderly kept pace with inflation, medical spending on children fluctuated. From 1995 to 1997 it declined 22.5 percent and then increased 13.7 percent from 1998 to 2000 as Medicaid expansions and SCHIP were implemented.

Explaining the gap. We found that differences in the growth rates of medical spending accounted for the majority of the widening gap during the study period. Per capita medical spending on children remained relatively flat, while per capita medical spending on elders grew (Exhibit 6). In contrast, the dominant mode of social welfare spending on children, per capita in-kind benefits (such as education and food assistance), kept pace with per capita spending on cash benefits (for example, Social Security and pensions) for the elderly, the predominant mode of spending on this group.

View larger version (39K): [in this window] [in a new window]   EXHIBIT 6 Trends In Per Capita Public Spending On Children And Elders, 1980–2000

Top Study Data And Methods Findings Discussion Editor's Notes NOTES

The Family Support Act (FSA) of 1988 took effect just as the economic growth of the mid-1980s ended, largely in response to growing public dissatisfaction with increases in welfare caseloads.²² The FSA reflected bipartisan consensus in which liberals achieved a broader safety net and conservatives achieved stronger work requirements for welfare recipients. Our analysis shows that social welfare spending on poor children through AFDC peaked in 1993 and then steadily declined in large part because of implementation of the FSA. The FSA served as a precursor to the dramatic shift in social policy that occurred with passage of the 1996 PRWORA. Although this legislation decoupled Medicaid and food-stamp eligibility from eligibility for cash assistance to preserve these benefits for needy families, multiple reports at the national, state, and local levels documented enrollment declines in all three programs.²³ Our analysis confirms that declines in welfare case-loads were accompanied by declines in total public spending in TANF, Medicaid, and food stamps. Subsequent efforts to remedy inappropriate disenrollment from Medicaid, combined with the movement to Medicaid managed care, Medicaid privatization, and implementation of SCHIP, led to increased outreach efforts to enroll all eligible children in Medicaid.²⁴ As a result, spending levels returned to their 1993 levels by 1999.

Devolution to the states. As the U.S. population ages and elderly people continue to have increasing and unmet medical needs, our observation that the growth of per capita medical spending on the elderly has exceeded the growth of per capita medical spending on children is not surprising. In an attempt to preserve health care benefits for elderly people in the future, the Balanced Budget Act (BBA) of 1997 included provisions to ensure the solvency of federally guaranteed Medicare trust funds.²⁵ In contrast, current budgetary proposals continue to transfer funding responsibility and determination of eligibility requirements for social welfare programs, including Medicaid, from the federal government to the states, discounting the needs of 8.5 million uninsured U.S. children.²⁶ This trend is particularly alarming in light of the fact that children represent an increasing proportion of the population living in poverty and that poverty has been persistently and repeatedly shown to be associated with poor health outcomes.²⁷ Moreover, given that a large proportion of adult morbidities, such as cardiovascular disease and cancer, are associated with preventable childhood precursors, such as obesity and smoking, increasing and stabilizing investments in child health merit serious consideration.²⁸

Study limitations. This study has several limitations. First, some programs providing benefits to both groups, such as public housing and the low-income home energy assistance program, do not provide data classified by age. These programs were not included in our analysis. Second, our analysis did not include indirect social welfare benefits for children and elders, such as those provided through tax subsidies. The Earned Income Tax Credit (EITC), a refundable federal income tax credit for low-income working individuals and families, underwent modifications in 1993 and 1996 that led to large increases in the number of recipients and refunded amounts.²⁹ Even though the total amount refunded grew from $1.3 billion in the 1980s to more than $26 billion in 2000, this would not offset the $190 billion gap in social welfare spending between children and the elderly in 2000.³⁰ Furthermore, to avoid bias, consideration of tax policies designed to benefit children (such as refundable credits and nonrefundable deductions) warrants consideration of tax policies designed to benefit the elderly (such as tax-deferred retirement accounts and the Tax Credit for Elderly and Disabled).³¹ Estimating benefits to the elderly through the tax system would require complex statistical modeling that relied on untested assumptions about retirement account contributions, earnings, and distributions. Taking these issues into consideration, indirect social welfare benefits through the tax system were not included in our analysis. Further research in this area is needed. Despite these limitations, our findings provide evidence that unlike spending on elders, social welfare spending on children is vulnerable to downturns in the U.S. economy.

Persistent disparities in the proportion of children versus elders living in poverty and the importance of investments in preventive health argue for increased and stable social welfare spending on children’s programs. The continued transfer of responsibility for funding of social welfare programs from the federal government to the states endangers the stability of funding for all children’s social welfare programs, especially health insurance. Whereas the elderly are afforded a basic guarantee of support regardless of economic and political changes, social welfare spending on children is left vulnerable to these fluctuations. In the current period of economic stagnation, U.S. spending on children’s social welfare programs and health care is likely to be further compromised.

Editor's Notes

Top Study Data And Methods Findings Discussion Editor's Notes NOTES

 
The authors are all members of the Pediatric Generalist Research Group at the Children’s Hospital of Philadelphia, senior fellows at the Leonard Davis Institute of Health Economics, and associate scholars at the Center for Clinical Epidemiology and Biostatistics at the University of Pennsylvania School of Medicine. Susmita Pati and Ron Keren are assistant professors of pediatrics in the Division of General Pediatrics and Evaline Alessandrini, in the Division of Emergency Medicine, at the Children’s Hospital. Donald Schwarz is the Mary D. Ames Associate Professor of Child Advocacy and the Craig-Dalsimer Division Chief of Adolescent Medicine there and vice chairman of the Department of Pediatrics at the Penn School of Medicine.

Susmita Pati is supported in part by a grant from the Anne E. Dyson Foundation. Ron Keren and Evaline Alessandrini are supported by Career Development Awards no. K23 HD 043179 and no. K23 HD01320-01A1, respectively, from the National Institute of Child Health and Human Development. The authors gratefully acknowledge Jennifer Loftus for her assistance with the preparation of this manuscript.

NOTES

Top Study Data And Methods Findings Discussion Editor's Notes NOTES

 

1. Personal Responsibility and Work Opportunity Reconciliation Act of 1996, 104–193, 110 Stat. 2105 (22 August 1996).
2. C. Mann, "The Bush Administration’s Medicaid and State Children’s Health Insurance Program Proposal" (Washington: Georgetown University Institute for Health Care Research and Policy, 2003).
3. G.A. Anderson et al., "It’s the Prices, Stupid: Why the United States Is So Different from Other Countries," Health Affairs 22, no. 3 (2003): 89–105[Abstract/Free Full Text]; Organization for Economic Cooperation and Development, Society at a Glance: OECD Social Indicators, Edition 2002 (Paris: OECD, 2003); I. Kawachi and B.P. Kennedy, "Income Inequality and Health: Pathways and Mechanisms," Health Services Research 34, no. 1, Part 2 (1999): 215–227[Web of Science][Medline]; B.P. Kennedy, I. Kawachi, and D. Prothrow-Stith, "Income Distribution and Mortality: Cross Sectional Ecological Study of the Robin Hood Index in the United States," British Medical Journal 312, no. 7037 (1996): 1004–1007 (see erratum in British Medical Journal 312, no. 7040 [1996]: 1194); and J.P. Martin, "Transforming Social Protection for the Twenty-first Century" (Paper presented at PrimeFinland 2020, 29 March 2004).
4. OECD, Society at a Glance.
5. U.S. Bureau of the Census, Current Population Survey, Annual Social and Economic Supplements, Poverty and Health Statistics Branch/HHES Division, "Table 3, Poverty Status of People by Age, Race, and Hispanic Origin: 1959 to 2002," Historical Poverty Tables, 2 October 2003, www.census.gov/hhes/poverty/histpov/hstpov3.html (21 June 2004).
6. Ibid. According to U.S. Census Bureau estimates, the number of Americans age sixty-five and older will grow from 41.4 million in 2001 (14 percent of the population) to 101.4 million in 2050 (25 percent of the population).
7. Boards of Trustees, Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, 2004 Annual Report of the Boards of the Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds (Washington: Boards of Trustees, 2004).
8. OECD, Society at a Glance.
9. A.E. Benjamin, P.W. Newacheck, and H. Wolfe, "Intergenerational Equity and Public Spending," Pediatrics 88, no. 1 (1991): 75–83.[Abstract/Free Full Text]
10. Ibid.
11. For food stamps, elderly are considered to be those over age sixty, and children are considered to be those under age eighteen.
12. M.R. Gold, ed., Cost-Effectiveness in Health and Medicine (New York: Oxford University Press, 1996).
13. The study sample is the entire U.S. population, so statistical inferences and testing are not necessary to evaluate the significance of observed differences and trends.
14. Full bibliographic information is available in an online appendix, ctblent.healthaffairsT1org/cgi/content/full/23/5/131/DC1.
15. Elderly people’s portion of Social Security includes payments to retired workers, their wives and husbands, surviving widowed mothers and fathers, widows and widowers, parents, and special beneficiaries. The children’s portion includes payments to retired workers’ children and surviving children.
16. Appropriations under the Older Americans Act were tracked by the House Committee on Aging in the mid- to late 1980s in a series of volumes entitled Developments in Aging.
17. Child nutrition programs include National School Lunch, School Breakfast, and Special Milk Programs.
18. Because of space limitations, spending data are presented for selected years 1980–2000. An expanded Exhibit 3 is available at content.healthaffairs.org/cgi/content/full/23/5/131/DC1.
19. Benjamin et al., "Intergenerational Equity and Public Spending."
20. C.E. Steuerle, The Incredible Shrinking Budget for Working Families and Children (Washington: Urban Institute, 2003).
21. U.S. House Committee on Ways and Means, Green Book, 1994: Background Material and Data on Programs within the Jurisdiction of the Committee on Ways and Means, 14th ed. (Washington: U.S. Government Printing Office, March, 1994).
22. Family Support Act of 1988, 100–485 (13 October 1988).
23. U.S. Department of Health and Human Services, Change in TANF Caseloads since Enactment of New Welfare Laws (Washington: HHS, Administration for Children and Families, 2000); U.S. Department of Agriculture, The Decline in Food Stamp Participation: A Report to Congress (Washington: USDA, 2001); U.S. Government Accountability Office, Medicaid Enrollment: Amid Declines, State Efforts to Ensure Coverage after Welfare Reform Vary (Washington: GAO, 1999); K. Kronebusch, "Children’s Medicaid Enrollment: The Impacts of Mandates, Welfare Reform, and Policy Delinking," Journal of Health Politics, Policy and Law 26, no. 6 (2001): 1223–1260[Abstract]; S. Pati, D. Romero, and W. Chavkin, "Changes in Use of Health Insurance and Food Assistance Programs in Medically Underserved Communities in the Era of Welfare Reform: An Urban Study," American Journal of Public Health 92, no. 9 (2002): 1441–1445[Abstract/Free Full Text]; and S.R. Zedlewski, "Leaving Welfare Often Severs Families’ Connections to the Food Stamp Program," Journal of the American Medical Women’s Association 57, no. 1 (2002): 23–26.
24. P.J. Cunningham, J.D. Reschovsky, and J. Hadley, "SCHIP, Medicaid Expansions Lead to Shifts in Children’s Coverage," Issue Brief no. 59 (Washington: Center for Studying Health System Change, 2002), 1–6; and A.D. Racine et al., "Differential Impact of Recent Medicaid Expansions by Race and Ethnicity," Pediatrics 108, no. 5 (2001): 1135–1142.[Abstract/Free Full Text]
25. Balanced Budget Act of 1997, 105–33 (5 August 1997).
26. U.S. Census Bureau, "Table 1—People without Health Insurance for the Entire Year by Selected Characteristics: 2001 and 2002," 30 September 2003, www.census.gov/hhes/hlthins/hlthin02/hi02t1.pdf (21 June 2004).
27. L.A. Aday et al., "Health Insurance and Utilization of Medical Care for Children with Special Health Care Needs," Medical Care 31, no. 11 (1993): 1013–26[Web of Science][Medline]; G.R. Byck, "A Comparison of the Socioeconomic and Health Status Characteristics of Uninsured, State Children’s Health Insurance Program–Eligible Children in the United States with Those of Other Groups of Insured Children: Implications for Policy," Pediatrics 106, no. 1, Part 1 (2000): 14–21[Abstract/Free Full Text]; K. Fiscella and P. Franks, "Poverty or Income Inequality as Predictor of Mortality: Longitudinal Cohort Study," British Medical Journal 314, no. 7096 (1997): 1724–1727[Abstract/Free Full Text]; M. Marmot, "The Influence of Income on Health: Views of an Epidemiologist," Health Affairs 21, no. 2 (2002): 31–46[Abstract/Free Full Text]; and P.W. Newacheck, "Poverty and Childhood Chronic Illness," Archives of Pediatric and Adolescent Medicine 148, no. 11 (1994): 1143–1149.[Abstract/Free Full Text]
28. HHS, Healthy People 2010: Understanding and Improving Health, 2d ed. (Washington: U.S. GPO, November 2000).
29. See Note 18. According to the Internal Revenue Service, more than 98 percent of EITC refunds in 1999 went to families. IRS, Compliance Estimates for Earned Income Tax Credit Claimed on 1999 Returns (Washington: Department of the Treasury, IRS, 28 February 2002). Detailed legislative history is available from House Committee on Ways and Means, Green Book, 2004, 18th ed. (Washington: GPO, March 2004).
30. House Committee on Ways and Means, Green Book, 2004.
31. Ibid.

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