Guest Post: Medicaid Expansion and the Woodwork Effect

According to a report issued last July by the Kaiser Commission on Medicaid and the Uninsured, if all states accepted Medicaid Expansion the number of uninsured would be reduced by an additional ten million people. The comprehensive report noted, however, that 4.9 million of those people were living in states that had refused the expansion and another 1.5 million were in states that had not yet decided.

Why have many governors refused the offer of the federal government to fund 100% of the expansion for three years, and 90% thereafter until 2022?  Among other reasons, the governors claim they cannot depend on the promise of federal funding, but they rarely state their main concern: the possibility that a large number of additional regular Medicaid clients will come "out of the woodwork." These are people who could have qualified previously under the regular Medicaid rules but never enrolled, perhaps because they did not know about the system, did not realize they might qualify, or did not know how to find out.  As reported by NPR in 2012: "what really has many state leaders worried is something called the 'woodwork effect.' When big parts of the health law go into force in 2014, they worry it will bring out of the woodwork the millions of people who are already eligible for Medicaid but aren't already enrolled."

It appears that many people have indeed been signing up for regular Medicaid because of the publicity about healthcare.gov and the state exchanges, as well as an easier, streamlined enrollment process required by the ACA. Evidence of the woodwork effect can be found in the latest CMS report. For states with Medicaid Expansion, there was an average increase of 14.4% in Medicaid applications Oct-Dec compared to the July-Sept average. For states not expanding Medicaid, there was an average decrease of 10.1% during the same period. This decrease may reflect a typical seasonal pattern, which makes the 14.4% increase in the Expansion states even more remarkable.

States refusing Medicaid Expansion fear the woodwork effect because the federal government pays a much smaller share of the costs of regular Medicaid: from 73 percent in a poor state like Mississippi, for example, to 50 percent for states such as Wyoming, California and Connecticut. When it comes to paying its share of Medicaid costs, the federal government will have to require that states distinguish clearly between regular Medicaid clients and the "non-elderly", non-disabled, childless, low-income adults between the ages of 19-64 who are newly enrolled because of Medicaid Expansion. 

Currently, these states (plus DC) are expanding Medicaid:

AZ, AR, CA, CO, DE, HI, IL, IA, KY, MD, MA, MI, MN, MA, NV, NJ, OH, UT, NM, NY, ND, OR, RI, VT, WA, WV

States not expanding Medicaid:

AL, AK, FL, GA, ID, LA, MS, MO, MT, NE, NC, SC, SD, TX, WI

States that may expand Medicaid or accept a modified version in 2014:

IN, KS, ME, NH, OK, PA, TN, VA, WY

Regarding the latter group, a recent article says "an unusual alliance of powerful hospital, business and religious interests has been leaning on Republican leaders to reverse course." It is probable that as the benefits of Medicaid Expansion to a state's budget become increasingly evident, such as less uncompensated care, more states will accept Medicaid Expansion despite their initial objections.