Millions of poor Americans have signed up for no-cost health insurance that they could have gotten even without the passage of Obamacare.
These Americans already were eligible for Medicaid, a government-funded program that provides medical coverage at little or no cost, but they didn't sign up for it because they didn’t have to or because they didn’t realize they could.
In recent years, however, the publicity of Obamacare has driven them to sign up in droves, so much so that economists and health policy wonks have dubbed the phenomenon the “woodwork effect,” or the “welcome mat” population. This group turned out to be larger than anyone anticipated.
A working paper released Monday in the National Bureau of Economic Research finds that 43 percent of those who gained insurance in 2014 came out of the woodwork. According to MIT economics professor Jonathan Gruber, one of the authors of the paper, this population totalled roughly 2 million people – not counting those who enrolled in 2015.
“The fact that it is the single largest policy lever in the [law’s] first year is somewhat surprising,” authors of the report wrote.
Gruber, who for years has been the go-to expert for the government in understanding the impact of Obamacare, says he didn’t see this coming. “Basically the woodwork effect may be the single biggest part of increasing coverage,” he says.
Looking at this group of people helps explain why projections about the law have turned out to be so far off. The most recent figures to come out of the Congressional Budget Office, a government agency that analyzed the effects of Obamacare, have shown that new Medicaid enrollment was significantly higher than anyone predicted, at 4 million above original calculations. When these results came out in late March, few cited the significant impact the woodwork effect had on these findings.
The figures were particularly starlting to analysts because the law didn’t play out as it was originally written. Obamacare had called for all states to expand Medicaid to cover all citizens making less than $16,243 a year. Prior to that, the standards for qualifying for the program varied by state, but were typically limited to poor children, pregnant women, disabled people and some parents.
But the full expansion never went into effect, because the Supreme Court ruled in 2012 that this part of the law could be optional.
So far, 30 states and the District of Columbia have expanded Medicaid, and Louisiana will expand its program beginning in June. State lawmakers have resisted expanding Medicaid on political grounds, but have also said they are concerned about the cost of expansion. The federal government covers the full cost initially, but then gradually dwindles funding support to 90 percent after three years.
Despite the refusal of so many states to expand the program, Medicaid enrollment still reached levels that were higher than if all states had expanded. Because of the woodwork effect, lawmakers who refuse to expand Medicaid have still seen a growth in the program’s enrollees, and that has put a strain on state budgets.
Gruber says that of the 2 million who enrolled in 2014, half came from expansion states and the other half came from non-expansion states.
And for the millions of people who would have qualified without Obamacare, states – whether they expand Medicaid or not – receive the lower matching rates from the federal government, rather than the full federal funding provided to cover those who are newly eligible under the law. These higher costs were largely unanticipated by states.
Douglas Holtz-Eakin, former director of the Congressional Budget Office and current president of the conservative American Action Forum, called the woodwork population a “wildcard,” saying projections were off target because it was difficult to predict how many people would take up Medicaid simply because of the publicity around expansion. States that expanded Medicaid made a concerted effort to get people signed up, he points out.
The growth happened quickly. In some non-expansion states, enrollment grew by as much as 10 percent in the first three months of 2014, when the Medicaid expansion went into effect in other states, according to the health care consulting firm Avalere Health. Taken together, more than 550,000 people enrolled in Medicaid in 17 states that had not expanded at the time.
In Georgia, North Carolina, South Carolina and Tennessee, which still have not expanded Medicaid, enrollment growth exceeded 50,000 beneficiaries in that short time.
Much of the publicity around Obamacare has been around online marketplaces, or exchanges, that allow people to get private health insurance that is paid for in part by the government. When people create accounts, the state or federal websites for buying insurance inform them when their incomes are low enough to qualify them for Medicaid. Sometimes they divert users directly to Medicaid websites, which have become easier to enroll in under Obamacare.
“These are generally people long eligible who likely didn’t realize it,” says Caroline Pearson, senior vice president of Avalere’s health care reform practice. “Because of all the publicity of the health care law and with the launch of the exchanges, they went on saying, ‘Maybe now I can get health insurance,’ and then realized they were eligible for Medicaid.”
Further, the "individual mandate" contributed to the trend. Before Obamacare people were allowed to be uninsured. Now, they must have health insurance – whether paid for by the state or by a private company – or pay a penalty. This incentive could have further motivated people to sign up for Medicaid, even given that people who make less than $16,243 a year actually can go without insurance and not be penalized.
In addition, people can enroll in Medicaid at any time. With private insurance, the enrollment period only lasts for a few months each year, with limited exemptions.
How many people will still come out of the woodwork isn't known.
“I don’t know that we know that much about the demographics,” Pearson says. “These are not people who have regular kind of work, otherwise they would have enough income that would make them not eligible for Medicaid. It’s really hard to say.”
By: Kimberly Leonard (U.S. News).
Photo: Joe Raedle (Getty Images).
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