Incentives and the Welcome-Mat Effect

Previous studies of Medicaid eligibility expansions have documented increases in Medicaid enrollment among those who were eligible under pre-expansion criteria. This "welcome-mat" effect can have substantial impacts on total enrollment and state and federal budgets. In contrast to earlier studies that relied on optional expansions, this paper estimates the total increase in Medicaid enrollment that resulted from the federally mandated expansions in the late 1980s. This paper uses a micro-simulation model to categorize CPS respondents by eligibility criteria in order to identify the welcome-mat effect of the Medicaid expansions. This analysis estimates that for every 100 individuals who were granted eligibility and enrolled in Medicaid, 25 previously-eligible children and 38 previously-eligible adults also enrolled. Therefore, budgetary analyses that focus only on the population targeted by new eligibility expansions will substantially underestimate the total future cost.