The "Woodwork Problem" and the Medicaid Expansion

There are two main fiscal arguments used to discuss why the Medicaid expansion is a bad idea. The first is that the federal government might someday renege on its promise to cover at least 90% of the expansion itself in the future. If that happened, the cost to states themselves could increase beyond what is anticipated. The second argument is sometimes referred to as “the woodwork problem”. Many people in the United States are currently eligible for Medicaid under the pre-ACA law, but have not signed up for coverage. When these people come “out of the woodwork” and sign up for coverage, states will be on the hook for their traditional Medicaid percentage. Currently eligible people do not fall under the much more generous federal coverage of the ACA-expansion. The problem with the second argument with respect to denying the Medicaid expansion is that forgoing the expansion will not remove the financial cost of the “woodwork effect”. Because of the mandate, and other publicity around the ACA next year, many people will sign up for Medicaid who hadn’t before. States won’t be able to deny them eligibility, and they’ll still be on the hook for the additional cost. A recent manuscript in Health Affairs addressed this issue. “Medicaid ‘Welcome-Mat’ Effect Of Affordable Care Act Implementation Could Be Substantial”:

The Affordable Care Act will have important impacts on state Medicaid programs, likely increasing participation among populations that are currently eligible but not enrolled. The size of this “welcome-mat” effect is of concern for two reasons. First, the eligible but uninsured constitute a substantial share of the uninsured population in some states. Second, the newly eligible population will affect states’ Medicaid caseloads and budgets. Using the Massachusetts 2006 health reforms as a case study and controlling for other factors, we found that among low-income parents who were previously eligible for Medicaid in Massachusetts, Medicaid enrollment increased by 16.3 percentage points, and Medicaid participation by those without private coverage increased by 19.4 percentage points, in comparison to a group of control states. In many states the potential size of the welcome-mat effect could be even larger than what we observed in Massachusetts. Our analysis has potentially important implications for other states attempting to predict the impact of this effect on their budgets.