Medicaid enrollment is growing faster than expected in some states. It’s going to cost them.

Welcome to Health Reform Watch, Jason Millman's regular look at how the Affordable Care Act is changing the American health-care system — and being changed by it. You can reach Jason with questions, comments and suggestions here. Check back every Monday, Wednesday and Friday afternoon for the latest edition, or sign up here to receive it straight from your inbox. Read previous columns here.

On Tuesday, I wrote about how states that have rejected Obamacare's Medicaid expansion had seen their Medicaid enrollment grow anyway, thanks to what's known as the "woodwork effect." Medicaid is built to serve low-income Americans, and many of these people were already eligible for the program but only decided to enroll  after the Obama administration launched a massive outreach campaign to get people covered and to pressure states to expand their programs.

There's not a reliable accounting just yet of how many woodwork enrollees have signed up since Obamacare enrollment opened in October. Some states running their own insurance marketplaces have provided information, but there's still not a full nationwide picture.

So, how are states dealing with this wave of new Medicaid enrollees?

From a state budget perspective, there's an important difference between the woodwork population and those newly eligible under the Medicaid expansion. Under the Affordable Care Act, the federal government pays 100 percent of the costs for the Medicaid expansion population through the end of 2016, with the state share gradually increasing to no more than 10 percent. New woodwork enrollees are funded under the traditional Medicaid structure, in which the federal government on average pays 57 percent of the cost — though the federal share varies by state.

States knew the woodwork effect was coming and had time to prepare for it, since the ACA was passed more than four years ago. The big question is just how accurately were they able to predict its impact.

At least a couple of states have already cited higher-than-expected costs from the phenomenon. California officials on Tuesday said the woodwork population is expected to grow 60 percent more than what they had expected, costing the state additional $1.2 billion. Rhode Island is now expecting to pay $52 million more than previously projected over two years after Medicaid sign-ups beat expectations by more than double.

California and Rhode Island have both expanded Medicaid and embraced the president's health-care law, but states have limited resources, which means tough budget choices if Medicaid grows faster than expected.

"The states are putting more into Medicaid, and they may like doing that because it means more people getting coverage," said Scott Pattison, executive director of the National Association of State Budget Officers. "But as they do that, it's less money for things like universities and so forth."

This graph from a December 2012 NASBO report shows how Medicaid has been taking a greater portion of state general funds, while education spending has decreased.

(National Association of State Budget Officers)
(National Association of State Budget Officers)

Pattison said that he's spoken with state budget officers who think it may take another few months to get a better understanding of the woodwork effect's full impact. They'll then be able to build the woodwork effect into future budgets.

"It won't be an immediate crisis issue from a budget standpoint, but it gets at that crowd-out problem as they continue to put more into Medicaid," he said.

States have been looking for ways to bring down Medicaid costs through coordinated care and are increasingly relying on private insurers to manage their programs. They may also reduce benefits or cut rates to providers, though that's tricky with millions joining the program under the ACA. The good news is that the Congressional Budget Office said last month that it expects states overall will spend a combined one-third less on Medicaid over the 10 years than previously projected.

Pattison said he's heard anecdotally that the woodwork effect is a bigger issue in states that expanded Medicaid. That's not  surprising, since those states generally have more resources — and more enthusiasm — to sign people up for coverage.

"I'm proud we did it," California Gov. Jerry Brown said Tuesday, according to the Los Angeles Times. "But we also have to take into account this thing is growing."

Top health policy reads from around the Web:

The struggles to find a doctor under Obamacare. "Before the law took effect, experts warned that narrow networks could impact patient’s access to care, especially in cheaper plans. But with insurance cards now in hand, consumers are finding their access limited across all price ranges. ... Narrow networks are part of the economic trade-off for keeping premiums under control and preventing insurers from turning away those with pre-existing conditions." Kelli Kennedy for the Associated Press

Insurers plan to provide more price transparency. "The elusive goal to provide consumers more transparency about prices may soon be achieved via a collaborative effort of health insurance giants Aetna, Humana and UnitedHealth Group. ... The information on prices will also include information about quality and other information in an effort to help health care become more transparent." Bruce Japsen in Forbes

What to look for in the 2015 health insurance rates."Health insurance plans are just now starting to turn in the prices they want to set for coverage next year. These filings are the first glimpse at how expensive Obamacare will be in 2015. ... No individual filing tells the entire story of how much premiums will increase in 2015. But there are a few things worth keeping in mind about what, taken altogether, the coming deluge of premium rates can tell us about the price of health insurance." Sarah Kliff in Vox

Jason Millman covers all things health policy, with a focus on Obamacare implementation. He previously covered health policy for Politico.
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