November 2006

This issue brief was made possible with the generous support of MetLife Foundation.

Healthier and Wealthier: Decreasing Health Care Costs by

Increasing Educational Attainment
In the past, states spent more on K12 education than on any other budget item. However, in
recent years, rising medical costs have changed this pattern; in 2003, health care expenses
surpassed education as the largest item in states budgets. In fiscal year 2006, Medicaid alone is
estimated to account for approximately 22 percent of total state spending, while all health care
costs will account for about 32 percent of states expenditures (National Governors Association
& National Association of State Budget Officers, 2006). These costs keep going up, and absent
some drastic change, there is every indication that they will continue to outpace most states
economic growth (Pew Research Center, 2006).
In general, individuals with lower
State Expenditures for Fiscal Year 2004
income, less education, and lowerstatus occupations and employment
Medicaid
have poorer health (National
22.3%
All Other
Institutes of Health, 2003).
31.7%
Therefore, it would seem that
raising educational levels would
reduce health-related expenditures
for the public sector, as well as for
individuals. Specifically, research
Elementary &
has shown that each student who
Secondary
Public Assistance
Education
graduates from high school, instead
2%
21.4%
Corrections
of dropping out before getting a
3.5%
diploma, will save states an average
Transportation
of $13,706 (in 2005 dollars) in
Higher Education
8.0%
10.9%
Medicaid and expenditures for
Source: National Governor Association & National Association of State
uninsured care over the course of his
Budget Officers, 2006
lifetime (Muennig, 2006). Savings like
that add up quickly. If the
approximately 1.2 million young people who are estimated to drop out of school in the
United States this year earn diplomas, states could save more than $17 billion over the
course of those young peoples lifetimes. Furthermore, similar savings could accrue for every
class of high school students who graduate rather than drop out, producing an annual repetition
of the boon to our nations coffers. These savings would also translate into better health and
improved life prospects for the nations citizens.

Education Improves Health

Health care costs incurred by states could be greatly reduced if high schools around the country
better prepared more students for the challenges of postsecondary education and the workforce.
Higher educational attainment increases a students future income, occupational status, and
social prestige, all of which contribute to improved health. The United States spends more than
any other country on health care, and many Americans have access to the finest physicians and
facilities in the world. However, Americans do not benefit equally from the care that is available.
The disparities do reflect socioeconomic patterns but are actually most closely correlated with
educational attainment (Anderson et al., 2005). A variety of interrelated factors explain this
relationship.
People with lower educational attainment have less insurance coverage. Nationwide, 45.8 million
people, or 15.7 percent of the population, have no health insurance at all (U. S. Census Bureau,
2006). Individuals with low levels of education are considerably less likely to have health
insurance; they are also more likely to have only limited or erratic coverage, or to be uninsured
for long periods of time (Kaiser Commission on Medicaid and the Uninsured, 2006). In many
states, few adults (ages eighteen to sixty-four) are eligible for Medicaid coverage.
Individuals who lack health insurance receive less medical care and have poorer health
outcomes. Uninsured adults with chronic illnesses are far less likely to receive care and
necessary prescriptions than insured adults (Davidoff & Kenney, 2005). These individuals are
generally in poorer health when first diagnosed with an illness, and the combination of late
diagnosis and less consistent care leads to poorer outcomes (Hadley, 2003). Poor health means
that those without insurance often have more difficulty finding employment, particularly higher
paying jobs with good health benefits. Because they either lack employment or earn less due to
poor health, they have more difficulty affording health care. As a result, their illnesses are often
more severe and they tend to die younger than do insured people (Gladwell, 2005).
Education leads to healthier lives. Its not just access to health insurance that yields better
outcomes for better educated people. Education has other important effects on peoples lives: it
improves earning power and social status, and it also affects cognitive ability (Goesling, 2005).
These factors influence lifestyle choices, knowledge and understanding of health issues, and the
health-related decisions that people make. Better educated people are more able to follow
doctors instructions successfully and to navigate medical bureaucracy. In addition, the
occupations of people with lower educational attainment are generally more dangerous and
expose workers to greater health hazards, from heavy machinery and chemicals to shifts that
disrupt sleep cycles (Muennig, 2005; Winkleby et al., 1992).
The consequences of educational disparities are striking: adults with low educational attainment
are more likely to die precipitately from cardiovascular disease, cancer, infection, lung disease,
and diabetes, for example (Muennig, 2005). On average, a high school graduate lives six to nine
years longer than a dropout (Wong et al., 2002).

Saving on Health Care by Improving Educational Attainment

In an analysis commissioned by the Alliance for Excellent Education, Dr. Peter Muennig,
assistant professor at Columbia Universitys Mailman School of Public Health, estimated how
much states could save on health care by improving educational attainment. Specifically,
Muennig examined the ways in which costs for Medicaid and uninsured care vary depending on
the education of individuals.
Because educated people are less likely to receive Medicaid assistance and more likely to be
insured, Muennig found that costs decrease with each level of educational attainmentthat is,
college graduates have better health and lower medical costs than high school graduates, while
high school graduates have better health and lower medical costs than high school dropouts.
Muennig estimated how many people enroll in Medicaid or are uninsured for some or all of their
adult lives at each level of educational attainment. Using data from the 2003 Medical
Expenditure Panel Survey, Muennig found, for example, that college graduates are far less likely
to be enrolled in Medicaid or to be uninsured than are high school dropouts, as shown in the
graph below (Agency for Healthcare Research and Quality, 2003).
While Medicaid enrollment
Medicaid Recipients and the Uninsured
requirements and the federal
by Educational Attainment
contribution differ in each
High School
Dropout
state, the annual cost to
High School
27.7%
Dropout
states of Medicaid per
24.8%
enrollee, on average, is
$8,045 (in 2005 dollars). To
calculate how much could
be saved by each state in
Medicaid costs if high
school dropouts became
College
Graduate
high school graduates,
5.8%
College
Muennig considered the
Graduate
1%
diminishing chance that an
individual will enroll as he
Medicaid Recipient
Uninsured
advances in educational
attainment, as well as variations such as the level of each states contribution to Medicaid
(Centers for Medicare and Medicaid Services, 2004). Muennig used this state-specific data to
estimate the amount that would be saved for each additional young person in each state who
graduates from high school. Stated another way, Muennig estimated what a dropout between the
ages of twenty and sixty-five would likely have cost each state in Medicaid expenditures.1
Differences in each states contribution to Medicaid cause the lifetime savings per graduate to
vary considerably by statefrom a low of $7,026 in Mississippi to a high of $15,143 for
Colorado, Connecticut, Delaware, Illinois, Maryland, Massachusetts, Nevada, New Hampshire,
New Jersey, and New York.2
30

25

20

15

10

Estimating the potential savings in costs for uninsured care is a more complex process because
adult individuals may be uninsured for varying lengths of time, and may have more than one
period of being uninsured over their lifetimes. In addition, the care they receive while uninsured
may be paid for in a variety of ways, including through federal, state, and local programs;
charities; or by the uninsured individual and/or his family. A variety of options for calculating
these costs is available, and Muennig used a state-by-state analysis of annual uninsured costs
conducted by Kenneth Thorpe in 2005. He estimated a per high school graduate cost savings
over a lifetime for uninsured care, matching the criteria used above for Medicaid cost estimates.
Again, the results vary from state to state, from a low of $724 in California to a high of $1,179 in
West Virginia.
Potential state savings across the lifetime of a single individual are significantCalifornia, for
example, could save $14,637 in Medicaid, and $724 in uninsured costs, for a total of $15,361 per
additional graduate. According to this analysis, Californias total lifetime health savings, if all
students in the Class of 20052006 graduated from high schoolas opposed to that states
current 71 percentwould be over $2.3 billion. The specific findings for each state and the
District of Columbia are presented in the chart on page 5.
As this analysis shows, states could save over $17 billion nationally, a savings that could be
earned for each class of students who graduate high school rather than drop out. This potential
public benefit is just one among a multitude of positive results that would accrue to society if
Americas educational system successfully educated all of its studentsinstead of allowing over
a million youth to drop out without a diploma each year. A citizenry that is not only healthier,
but also wealthier and wiser, is an asset that every state, and the country as a whole, needs.
For more information about the state of Americas high schools
and to find out what individuals and organizations can do
to support effective reform at the local, state, and federal levels,
visit the Alliance for Excellent Educations website at www.all4ed.org.

The Alliance for Excellent Education is grateful to MetLife Foundation for its generous
financial support for the development of this series of briefs that explore the economic and
social benefits of education. The findings and conclusions presented are those of the Alliance
and do not necessarily represent the views of the funder.

While many senior citizens are dually eligible for Medicare and Medicaid, costs occurring beyond the age of sixtyfive were not considered. The average twenty-year-old high school graduate in 2006 will reach the age of sixty-five
in 2051. Therefore, discounting renders any cost savings beyond the age of sixty-five small and uncertain.
2

This analysis accounts for state-by-state variation in the proportion of Medicaid paid for by the state government
and the proportion paid for by the federal government. However, it does not account for state-by-state differences in
eligibility for Medicaid enrollment, which can result in some variations to these calculations.

Lifetime Savings for Medicaid and Uninsured Medical Coverage Costs if All Students in
the Class of 20052006 Graduated from High School*
State
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming

United States

State Medicaid
State Uninsured Total Health Savings Total Lifetime Health Savings if
Savings per
Savings per
per Additional
All Students in the Class of
Additional Graduate Additional Graduate
Graduate
20052006 Graduated
$9,216
$12,175
$10,321
$8,222
$14,637
$15,143
$15,143
$15,143
$9,086
$13,077
$12,150
$14,837
$9,040
$15,143
$11,587
$11,187
$12,105
$8,919
$8,989
$10,230
$15,143
$15,143
$13,595
$14,694
$7,026
$11,960
$8,389
$11,848
$15,143
$15,143
$15,143
$8,080
$15,143
$11,360
$8,958
$12,517
$8,755
$12,126
$13,986
$14,001
$9,101
$9,473
$11,175
$11,702
$8,616
$11,436
$14,637
$14,588
$7,638
$12,484
$10,891

$896
$1,058
$767
$908
$724
$981
$882
$809
$873
$843
$834
$988
$937
$1,001
$1,140
$1,038
$834
$1,056
$964
$749
$901
$731
$957
$750
$872
$840
$1,109
$1,009
$866
$894
$850
$842
$810
$995
$935
$1,019
$951
$1,002
$1,054
$828
$873
$975
$1,007
$831
$809
$727
$886
$1,043
$1,179
$979
$917

$10,112
$13,233
$11,088
$9,131
$15,361
$16,124
$16,025
$15,951
$9,959
$13,920
$12,985
$15,825
$9,977
$16,143
$12,727
$12,226
$12,939
$9,975
$9,953
$10,980
$16,044
$15,873
$14,552
$15,444
$7,899
$12,799
$9,498
$12,857
$16,009
$16,036
$15,993
$8,922
$15,953
$12,355
$9,893
$13,535
$9,706
$13,128
$15,040
$14,829
$9,973
$10,448
$12,182
$12,533
$9,425
$12,163
$15,523
$15,632
$8,817
$13,462
$11,808

$244,976,155
$57,227,676
$265,371,426
$93,711,844
$2,325,813,659
$279,681,701
$155,376,012
$65,253,148
$19,936,815
$1,478,297,933
$746,414,155
$92,725,623
$45,299,607
$647,038,335
$283,844,559
$84,369,080
$125,849,103
$161,809,671
$226,748,320
$48,612,191
$307,090,433
$363,462,657
$750,225,999
$224,361,106
$121,181,083
$245,082,419
$29,816,152
$68,591,505
$230,138,920
$63,611,493
$258,570,959
$111,497,630
$1,503,489,117
$491,596,702
$15,199,403
$502,149,154
$137,600,879
$185,189,904
$505,489,593
$56,942,990
$320,071,956
$27,919,252
$350,253,748
$1,560,947,102
$79,164,588
$19,404,276
$396,903,408
$436,119,866
$55,280,830
$202,425,026
$22,752,102

$13,706

$17,090,887,263

Health-related savings were calculated by Dr. Peter Muennig, who estimated the difference in the percentage of people
receiving Medicaid and the percentage of people who are uninsured by educational attainment. Muennig also estimated the
average cost of a Medicaid recipient and the average cost of an uninsured person to state governments and determined lifetime
costs for high school dropouts, high school graduates, those who attended some college, and college graduates. State Medicaid
savings and uninsured savings over the lifetime of an additional high school graduate combine to the total lifetime health savings
per additional graduate. The total savings per additional graduate was multiplied by the estimated number of additional students
who would earn a diploma if high school graduation rates were increased from the current state rate to 100 percent in the 2005
2006 school year (Editorial Projects in Education, 2006; U. S. Department of Education, National Center for Education Statistics,
2003) to calculate the total health savings if all students in the Class of 20052006 graduated on time.

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The Alliance for Excellent Education would like to thank Dr. Peter Muennig, Mailman
School of Public Health, Columbia University, for his guidance in preparing this brief.