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Out of the woodwork: Medicaid's red-state rise

New Medicaid enrollees are coming out of the woodwork even in some anti-Obamacare states—which may further strain some of those states' budgets.

Seventeen of the 26 states that had not expanded their eligibility rules for Medicaid to capture more poor adults as of March 31 nonetheless saw net increases in the number of Medicaid recipients—a total of 550,300 people—since last fall, according to an analysis by health-care consulting group Avalere Health.

Many are people who could have been covered by Medicaid before, but for some reason had not signed up for it, and may not have even been aware they could do so. Such enrollment is called the "woodworking effect" by health policy experts, because of the imagery it evokes of people coming out of the woodwork to sign up.

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The 17 states had an average increase in Medicaid enrollment of 2.8 percent, Avalere said.

Montana, saw a 10.1 percent jump in its Medicaid rolls, and five other states saw increases of more than 5 percent apiece in the program that provides health coverage to low-income people.

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Medicaid programs are jointly run by the federal government and individual states, with funding split between them roughly 50-50 for people who were eligible for Medicaid without the Obamacare expansion provision.

That means those "woodwork" enrollees will likely cost states more than people who are newly eligible for Medicaid in expansion states, whose costs are 100 percent covered by the federal government for the first three years, and 90 percent thereafter.

"Many of these nonexpansion states that politically opposed the [Affordable Care Act] are now facing unexpected financial and operational pressure due to woodwork enrollment," said Caroline Pearson, vice president at Avalere Health.

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Most people eligible for Medicaid before Obamacare were poor children, pregnant women, disabled people and some parents. Medicaid recipients do not have to pay for their coverage.

Enrollment growth in non-expansion states

State
Woodwork beneficiaries
Percent increase in enrollment
Georgia 98,800 5.8%
North Carolina 58,000 3.3%
Tennessee 53,700 4.3%
South Carolina 53,600 5.4%
Indiana 45,000 4.0%
Pennsylvania 41,000 1.7%
Oklahoma 38,300 4.8%
Virginia 36,600 3.6%
Michigan 30,400 1.6%
Kansas 22,500 5.7%
Idaho 19,000 7.5%
Mississippi 17,800 2.5%
Montana 14,100 10.1%
Utah 10,400 3.2%
New Hampshire 7,600 6.0%
Texas 3,200 0.1%
South Dakota 200 0.2%
Total 550,300 2.8%
Source: Department of Health and Human Services

The Affordable Care Act, passed in 2010, originally mandated that Medicaid would be expanded nationwide to include all adults with annual incomes at or below 138 percent of the poverty line, or slightly more than $16,000. But the 2012 Supreme Court decision upholding most of the ACA's legality also said that the decision on whether to expand eligibility for Medicaid recipients would be left up to individual states.

As of last fall, at the time of the launch of the Obamacare private insurance exchanges, about half the states had expanded Medicaid eligibility, but a number of them with Republican governors, whose party members tend to oppose the ACA, did not.

A majority of the states that expanded Medicaid have seen double-digit percentage growth in the program's enrollment rolls since then, with Oregon leading the pack with a nearly 44 percent spike in its enrollment, followed by West Virginia with 38.5 percent.

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While states that didn't expand Medicaid weren't expected to see such large increases, the fact that 17 of them did see gains is a reflection of the impact of Obamacare-related outreach and awareness, said Avalere Health CEO Daniel Mendelson.

"This is the educational effect of HealthCare.gov," Mendelson said. HealthCare.gov is the Obamacare enrollment website that handles health insurance sign-ups for residents of 36 states not running their own exchanges.

After people create accounts on that site, HealthCare.gov informs them whether their incomes are low enough to qualify them for Medicaid, or whether they need to purchase private insurance plans to meet Obamacare's mandate to have health insurance.

"There's low-income people who get online, and lo and behold they have the shock of their week and find out they're eligible for Medicaid," Mendelson said. "Some of them probably are a little bit mortified because there's a stigma associated with Medicaid in many populations, but they sign up anyway because it's cheaper."

Still, Mendelson noted, "there are millions of people who are eligible for benefits that have not signed up for them."

"It's really hard to get everybody. There are language issues, there are cultural issues ... there are issues related to poverty," he said. "Stigma is another one."

Robin Rudowitz, an associate director of the Kaiser Family Foundation, said it is difficult to identify one single factor that led to most of the woodworking enrollment.

Rudowitz noted that in addition to increased outreach and awareness associated with Obamacare, the ACA mandated that all states modernize and simplify their Medicaid enrollment processes so that people could sign up in a variety of ways, and quickly learn whether they are eligible for coverage. That simplification also played a role in boosting enrollment numbers, she said.

Nationally, Medicaid enrollment grew by a total of 4.8 million from last October through March, according to the federal Centers for Medicare and Medicaid Services.

CMS has said that there are another 5.7 million low-income adults who could qualify Medicaid if their states had expanded eligibility standards.

"We are pleased that Americans across the nation are continuing to sign up for coverage through the Medicaid program," said Fabien Levy, a Department of Health and Human Services spokesman.

Levy noted that the states that have not yet expanded coverage are giving up more than a combined $100 million a day in federal funding.

"We are eager to continue to work with all states to expand Medicaid and aim to be as flexible as possible, while ensuring Medicaid beneficiaries across the country receive all of the protections afforded to them under the law," Levy said.

The question about whether to expand eligibility remains a contentious issue in some of those states, with staunch Obamacare opponents dead set against anything associated the ACA, and some Republican governors and legislatures attracted by the option of having the federal government foot the bill for reducing the number of uninsured poor people.

Since March, Maine's legislature voted three times to expand Medicaid eligibility, but each time it saw that bill vetoed by Gov. Paul LePage, a Republican who has said such a move would cost too much money.

Read MoreMedicaid expansion could cost states less

However, Michigan and New Hampshire, which were nonexpansion states, have approved eligibility expansion. Michigan began enrolling newly eligible people in April, and New Hampshire will begin in July.

Pennsylvania Gov. Tom Corbett wants to effectively expand Medicaid eligibility beginning in 2015, but needs a federal waiver to proceed with his plan to use federal money to buy private insurance coverage for the recipients.

—By CNBC's Dan Mangan.

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