Medicaid enrollees challenge budgets

Although the dissemination of federal funds to states opting into Medicaid expansion has only recently begun, increased enrollment was seen as early as October, when the exchanges first opened.

According to Emma Sandoe, spokesperson for the Centers for Medicare and Medicaid Services (CMS), 3.9 million people enrolled in Medicaid in October and November 2013. This number represents people who are newly eligible under the Affordable Care Act’s (ACA) expansion, and those who were eligible under prior law, Sandoe says.

The emergence of new Medicaid enrollees from among those previously eligible may be explained in part by the “woodwork effect,” a phenomenon in which increasing general awareness of Americans’ coverage options brings large numbers of the uninsured “out of the woodwork.”

“We know that at any given point in Medicaid’s history, there has always been a significant number of people who are eligible, but just aren’t on the program, for various reasons,” says Matt Salo, Executive Director of the National Association of Medicaid Directors. “So, the expectation [was] that when January 2014 rolls around and the expansion happens and the exchanges go live, and the culmination of all the outreach and information and education about the program gets out, a lot of these people will start showing up.”

Salo says in some cases, previously eligible individuals were not aware of the program, or might have been repelled by the stigma of receiving “handouts.”

“An analogous situation was when the Children’s Health Insurance Program (CHIP) program was created in 1987, as an add-on to the Medicaid program for kids,” Salo says. “We did a lot of very different advertising for it, and it was billed as: ‘This is not Medicaid; this is private insurance for kids.’ And in a lot of states, what people found was that for every kid who came onto the program, there were sometimes two, three or four kids who were actually Medicaid eligible.”

And that’s when the woodwork effect began showing impact on state outlays.

UPDATE 2-8-14: New Hampshire has decided to expand Medicaid

No ACA funds for woodwork population

While bringing more of the uninsured into the Medicaid program is ostensibly the goal of the expansion, the woodwork effect could be financially overwhelming to states if not immediately in 2014 then in years to come. The existing Federal Medical Assistance Percentages (FMAP) are one source of funding for state Medicaid populations-matching state expenditures with federal dollars-while new federal dollars under ACA are meant to pay for the expanded population.

“The people in the new expansion group, the newly eligible, will have 100% of their care paid for by the federal government, but anyone in this woodwork-effect group-those who were previously eligible-they don’t get any enhanced match at all,” Salo says. “If you’re in New York, for example, maybe it’s 50/50, or if you’re in West Virginia, it’s 70/30. And if that population turns out to be sizable, that does pose a possible financial impact to states.”

According to Sara R. Collins PhD., vice president of Healthcare Coverage and Access for the Commonwealth Fund, the Congressional Budget Office is projecting about 9 million new Medicaid enrollees this year, and about 12 million by 2015.

“This would include those who come into the program because they were already eligible,” she says.

Salo says in terms of successfully managing a potential woodwork effect influx at the state level, much will depend on anticipating the numbers and budgeting for them.

“Part of the question is, how many of these folks will show up?” he says. “You know it’s going to be factor, but you don’t know how much of a factor it’s going to be. You might budget expecting 10% of these people to show up, or you might budget expecting 90% of them to show up. This is what state budgeting does-you make assumptions about behavior, and they’re often wrong. You can’t predict the future.”

Another important factor for states to consider, Salo says, is the demographics and the health status of new enrollees.

“Is it the 28-year-old waiter or waitress who is young and healthy, but just doesn’t have a lot of money? That’s easy; these people don’t cost a lot of money,” he says. “Or are these people who are off the grid, with co-occurring mental health disorders or substance abuse problems? Are they homeless? These people are very expensive.”

Churning remains a long-term issue >

Coverage Gap

Conversely, in states that have opted out of the Medicaid expansion, Collins says there is the coverage gap affecting many of those who would have been newly eligible. She says this gap will affect about 5 million of the uninsured in states that choose not to expand Medicaid.

“If your state doesn’t expand the Medicaid program and your income is under 100% of federal poverty level, then you are often not eligible for the tax credits,” Collins says. “States have varying levels of eligibility in their current Medicaid programs, mostly for very low income parents; most don’t have coverage for adults. So people are going to fall into this gap where their incomes, perversely, aren’t high enough to get a subsidy.”

The motivations for choosing not to expand Medicaid are complex and, often, vary from state to state. However, Collins says she doesn’t believe that pure financial reasons would be a legitimate factor.

Sara Collins“It’s hard to understand the economic rationale for not expanding,” she says. “States can choose to expand next year, but opt not to participate the following year. But they are losing a substantial amount of federal dollars by not participating.”

She says particularly from the perspective of the hospitals, which will now have reimbursement for a lot of people who were previously uninsured, expansion makes sense. It’s better to have patients with a source of coverage than to chalk up higher percentages of bad debt and charity care.

Salo says for many states, political or ideological concerns are the motivating factors for choosing not to expand Medicaid.

“In states where governors or state legislators have been, in essence, running against Obama as aggressively as possible for four years, for them to turn around and say, ‘oh, I’d like a second helping of that please,’ is a political non-starter,” he says. “It’s very difficult, and sometimes it’s insurmountable.”

He says in some cases, states bristle at having only two options: expand Medicaid or nothing at all.

He says it’s not fair to characterize Republican-led states as not caring about poor populations, but rather it’s that they’re concerned that their only options are to expand the program as it is, or do nothing.

2014 Medicaid Outlook >

The ‘Private Option’

There has been some small amount of movement toward alternative Medicaid expansion models outside of what’s described in ACA. Salo says the CMS approval of Arkansas’ “private option”-which uses federal Medicaid resources to purchase private health insurance for low-income residents of the state-has spurred similar initiatives in other states. So far, four states have sought alternative models, with stipulations such as lifetime limits on coverage, mandatory job searches or drug testing for beneficiaries.

“The administration has been kind of coy in its willingness to broaden this to a lot of other states,” Salo says. “But in the past couple of weeks, we’ve seen Iowa and Michigan get approval for variations of the Arkansas approach.”

He says states want other options besides all or nothing, and the administration miscalculated the states’ willingness to accept federal funding at the cost of their politics.

“The administration was banking on the fact that 100% federal [funding for expansion] is free money, and who can turn that down?” he says. “But in a lot of state houses, there’s more concern about the direction the federal government is taking and the debt it is accruing. So, they are holding out. It’s like Kabuki theater, or a game of chicken: waiting to see who is going to blink first.”

Collins maintains that for the residents of the states, the expansion is bound to be beneficial, even with those who appear from the woodwork.

“The good thing is these are people who have been eligible but not enrolled, and the goal of the law is to bring everyone into the system,” she says. “Whether they’re getting coverage under an existing program, or coverage under an expansion, they can go to their doctor or hospital and there will be funding that flows to the provider for their care.”