Obamacare’s Fiscal Damage Comes Out of the Woodwork
Following last week’s release of CBO’s re-estimate of the health law in light of the Supreme Court’s ruling, it’s worth digging into the new numbers a bit more to examine the Congressional Budget Office’s assumptions, one of which is the “woodwork effect.” “Woodworking” refers to uninsured individuals who were already eligible for Medicaid, but who will now come “out of the woodwork” and finally apply for benefits – due to the individual mandate, publicity surrounding the law, new efforts to streamline enrollment processes, etc. Last week CBO revealed for the first time its belief that the “woodwork effect” will comprise more than one million more individuals, and a greater percentage of the newly enrolled, than the Medicare actuary had previously asserted.
In its updated analysis, CBO assumes that due to the Court ruling, “about one-fifth of the people who would have been eligible for Medicaid in the absence of the [law] and were, in prior estimates, projected to enroll will no longer enroll in Medicaid.” Elsewhere in the same report, CBO concludes that these individuals – those who would have been attributed to the “woodwork effect,” but will now not enroll due to the Court ruling – comprise about one-quarter of “the 6 million people who will not have Medicaid coverage in 2022 as a result of the Court’s decision.” These numbers allow for some simple extrapolations:
- CBO assumes the Court ruling will reduce the “woodwork effect” by 1.5 million individuals (6 million times one-quarter);
- CBO originally assumed the “woodwork effect” would result in 7.5 million previously eligible individuals enrolling in Medicaid (1.5 million divided by one-fifth), but now believes the effect will result in 6 million previously eligible individuals joining Medicaid in light of the Court’s ruling (7.5 million minus 1.5 million); and
- In their March 2012 analysis prior to the Court ruling, CBO assumed that the newly eligible would constitute at least 9.5 million enrollees – 17 million total newly enrolled in Medicaid, minus 7.5 million already eligible for Medicaid but new-to-enroll thanks to the law. (The “at least 9.5 million” designation reflects the fact that some states who had previously expanded their Medicaid population above 138 percent of poverty may now shrink their programs to be consistent with the new federal guidelines, causing some individuals currently eligible for Medicaid to lose coverage.)
Conversely, the Medicare actuary has predicted a much smaller “woodwork effect.” In his annual Medicaid actuarial report in March, he claimed that of his estimate of 25.9 million new Medicaid enrollees in 2022, “82 percent are projected to be newly eligible (that is, eligible only under the new rules beginning in 2014), while 18 percent are projected to be eligible under the current Medicaid rules. This latter group is expected to enroll in Medicaid as a result of the new assistance that will be available through the simplified enrollment process, the health insurance exchanges, and the publicity associated with the expansion of eligibility.” This means that the Medicare actuary estimated a total “woodwork effect” of 4.7 million enrollees (25.9 million times 18 percent) – several million beneficiaries less than CBO’s initial 7.5 million estimate. It also means that the actuary estimated that of the 25.9 million total new enrollees, 21.2 million (25.9 million times 82 percent) will be those newly eligible for Medicaid. (Note that all these estimates from the Medicare actuary came before the Supreme Court ruling, and may well be reduced as a result of same.)
The size and scope of the “woodwork effect” is a critical worry for states. While states will receive the law’s new enhanced Medicaid federal match for newly eligible individuals, states will receive only their existing federal match rate – which could be as much as 50 percentage points lower – for those who are already eligible but use the 2014 “Big Bang” as a reason to sign up. The fact that CBO projects millions more will enroll due to the “woodwork effect” is not a good sign for state budgets struggling to cope with their existing fiscal crises – to say nothing of the additional crisis placed upon the states by Obamacare.