Medicaid work requirements

States balk at the high price of Medicaid work requirements amid budget crunch

States dealing with budget shortfalls are facing tens of millions of dollars in new costs ahead of the federal Jan. 1 deadline.

By Robert King and Alice Miranda Ollstein

The Trump administration is counting on Medicaid work requirements to save the government billions of dollars. But well before the rules formally go into effect Jan. 1, they’re costing already-strapped states millions or tens of millions to implement.

State health departments are having to funnel resources into hiring more staff, paying for overtime, and upgrading their aging technology systems so they can determine which low-income residents are working, volunteering, caregiving, or studying enough hours to keep their Medicaid coverage. They are also building new systems to determine who is sick enough to qualify for an exemption.

Democratic state officials, most of whom oppose the policy, say it’s an unfair burden at a time when many states can least afford it – amid drops in tax revenue and federal funding as a result of other policies in last year’s One Big Beautiful Bill Act. The work requirements in that party-line law apply only to states that expanded Medicaid under the Affordable Care Act, and only to people enrolled in that expansion, who typically make more money than those covered by traditional Medicaid.

Even state Republicans who back the work requirements and have positioned the new policy as a way to fight fraud — a centerpiece of the GOP midterm campaign strategy — acknowledge it is stressing their budgets and prompting painful cuts in other areas, including health care and education.

North Carolina, for example, is asking everyone on Medicaid — even those not subject to the work requirements — to pay more out of pocket for services. And Arizona’s legislature is in tense negotiations with the governor over a state budget that would slash spending on Medicaid, food stamps, state universities and other programs in order to meet state obligations, including $14 million to implement Medicaid work requirements.

“We don’t have a bunch of extra money to go around,” said Republican Sen. Brad Hudson of Missouri, which expanded Medicaid by ballot initiative in 2020. “We had to make cuts this year. We’re probably going to have to make cuts next year. And, after a while, you can get into cutting some things that are pretty close to what all of us agree are essential services.”

An analysis of 2024 data by the health research organization KFF found that 92 percent of working-age adults on Medicaid either work full time, attend school, care for a relative or have an illness or disability. The remaining 8 percent included many who were retired or unable to find work.

The only states to run pilot versions of work requirements in recent years — Arkansas, an expansion state, and Georgia, a partial expansion state — saw many working residents become uninsured because they couldn’t navigate the bureaucracy. Both states also spent a lot to implement the rules and saw no rise in employment as a result.

But neither that record nor the current high price tag have blunted many conservatives’ enthusiasm for the policy.

Hudson said that while the “additional cost” of enacting work requirements is causing “consternation” in his state, he expects the policy to eventually yield dividends when large numbers of beneficiaries are dropped from the rolls for noncompliance. He and other Republicans argue the rules will encourage people to find jobs with private health insurance benefits.

“I think in the long run we’ll be in better shape,” he said.

Other state lawmakers and health department leaders, as well as national experts, were less confident the policy would generate long-term savings.

States and the federal government would theoretically save money if the requirements cause millions to drop off the Medicaid rolls, as predicted. However, state officials fear any state savings will be offset or even cancelled out by expenditures to enforce the rules, as well as other impacts of the One Big Beautiful Bill Act passed last summer.

“I’m looking at the operational, I’m looking at the programmatic, and I’m looking at the fiscal challenges associated with the implementation of this bill, and it’s taking a significant amount of financial resources away from a system that people depend on,” said Marvin B. Figueroa, the Virginia Secretary of Health and Human Services.

Making tradeoffs

POLITICO asked officials in 37 states that expanded Medicaid through the Affordable Care Act, and the District of Columbia, how much they are spending to implement work requirements by the Jan. 1 deadline, and how much the federal government is helping to pick up that tab. Twenty-one responded, reporting upfront costs of between $4 million and more than $30 million that must come from state coffers. Some had also calculated ongoing annual costs, while others had not.

Only Nebraska is already enforcing the rules, which apply to working age adults on the expansion — including parents of children age 14 or older — who are not deemed “medically frail.” Montana is expected to do so starting in July.

While the One Big Beautiful Bill Act included $200 million in federal funds to be divided between expansion states to help pay for implementation costs, several officials said it won’t be nearly enough to cover them.

North Carolina, for example, got $1.9 million in federal funding to implement the work requirements, but expects it will need to spend an estimated $31.2 million annually to enforce them and conduct the biannual eligibility checks Congress mandated. The state is considering several avenues to make up the cost, including raising the tax on premiums for privately run managed care plans that run the Medicaid program for the state.

Pennsylvania Democratic Gov. Josh Shapiro proposed a $7.8 million outlay to update the state’s IT systems before the 2027 deadline, on top of $6.5 million in federal grants the state is expecting to help with the tech upgrades.

Pennsylvania expects it needs to hire nearly 400 hundred people to implement the work requirements and other parts of the megabill.

“Instead of focusing on programs to help Pennsylvanians achieve and maintain health, this law has forced our teams to focus on programs that will help people complete paperwork,” said Valerie Arkoosh, Pennsylvania’s secretary of health and human services.

Ohio, meanwhile, estimates that it needs $28 million over two years for the work requirements to update systems, staff and outreach.

New Mexico estimates it will cost the state $24 million in state funds over 18 months to make changes to its Medicaid system and to include changes to the IT system for the SNAP food program. The One Big Beautiful Bill included changes to the exemptions for work requirements which already exist under SNAP, which serves low-income people.

The Centers for Medicare and Medicaid Services said in a statement it is helping states beyond the $200 million in funding. This includes in-person and virtual sessions to help states engage with tech vendors and give them ongoing technical assistance.

The added cost of enforcing the new work rules is just one stressor for states.

A study from the think tank RAND found states’ Medicaid budgets are expected to decline by a collective $664 billion through 2034 — a blow to both expansion and non-expansion states.

That’s because Republicans’ megabill put new limits on two tools states have long used to draw down federal dollars. One is a cap on the taxes states can charge health providers, which they used to help pay for their share of Medicaid. Hospitals haven’t minded the tax because they can get higher payment rates in return.

With reduced revenue, states will have less money to pay their share of Medicaid, and the amount of federal matching dollars they can claim will decline as well.

Congress also reduced the amount of money states can funnel to certain types of health care providers, such as those in rural areas.

Even states doing well financially, like Minnesota and Virginia, are balking at the high price tag.

While Minnesota, which has a small budget surplus, expects to spend around $14 million this year to implement the work requirements, state lawmakers noted that amount doesn’t include a one-time $90 million infusion of funding for county governments to hire more workers and upgrade their technology.

“Most of the bureaucratic and administrative burden of this work requirement verification will fall on the counties,” said Democratic State Sen. Matt Klein, noting many of those county governments are “minimally staffed.”

Klein, a doctor, said he would have preferred spending the state’s surplus to cover more Minnesotans or improve their coverage, and worries the work requirements policy will have the opposite effect.

“The reason it saves money on Medicaid is because they know we’ll be kicking people off of health care,” he said, adding that both people who aren’t working and those who are employed but struggle to prove their work status will be targeted for removal. “And when people don’t have health care coverage, they will come in sicker, and they’ll come in later. Hospitals will be burdened with caring for them, regardless, and they’ll be uncompensated.”

The costs to states for Medicaid under the expansion is lower than for traditional Medicaid, with the federal government paying roughly 90 percent of costs and states about 10 percent. Costs for traditional Medicaid are split roughly 50-50.

A few states told POLITICO they do not yet have an estimated cost for implementation because they are awaiting key information from CMS.

The agency has until June 1 to issue pivotal guidance to states, including what conditions qualify someone for a “medically frail” exemption from the work requirement, and how to verify that someone is attending school instead of working. Only Nebraska began enforcing the work requirement before receiving this guidance.

States can fairly easily check if someone is working since they already have to verify a beneficiary’s income in order to sign them up for or renew their enrollment in Medicaid. States can use tools such as Equifax, a database for employers to submit employee information such as income.

States may struggle, however, to verify the income and work hours of people who are self-employed or rely on gig work or seasonal jobs. Some states plan to ask individual beneficiaries for permission to reach out to their employers or access their bank accounts to verify information, said Jennifer Tolbert, deputy director for Medicaid and the uninsured for the health research organization KFF.

Diving for discounts

One of the biggest expenses associated with the new rules, state leaders told POLITICO, is the hardware and software needed to process the new paperwork.

The federal government will cover 90 percent of the cost for a new IT system, with states picking up the rest of the tab. However, that declines to a 75 percent-to-25 percent split for ongoing costs like maintenance and operations of the IT systems.

In late January, CMS announced an agreement with ten tech companies — including major vendors such as Deloitte and Optum — to offer $600 million in discounted services and products to states to help with implementation.

A majority of the states that responded to POLITICO said they are looking into that program, but don’t yet know how much it will save them.

Pennsylvania, for example, hasn’t opted into any free services “due to lack of clarity from those vendors on ongoing maintenance costs and system compatibility issues, among others,” the state’s health department said. Instead, leaders there are looking into discounts within its existing contract with its primary IT vendor.

Contracting with another company in order to get the federally-negotiated discount could violate those existing contracts, according to Tolbert at KFF, which did a survey of states affected by the work requirements.

Connecticut told POLITICO the discount program won’t work for them because their eligibility system is older and “not well suited for making complex changes.”

The state is also wary of making costly modifications because of the “uncertainty around future federal policy changes.”

South Dakota’s health department said the state isn’t aware of any free or discounted products by vendors working with CMS that are compatible with its eligibility system.

Others, including Arizona, say they have gotten a break through the program. But lawmakers worry it won’t be enough to offset the other burdens from the One Big, Beautiful Bill Act.

“The struggle we are experiencing right now, as we’re trying to negotiate a budget, is with the tax impact of [the megabill] leading to lessened revenue on top of these additional costs of compliance,” said Arizona Sen. Priya Sundareshan, the leader of the chamber’s Democratic caucus. “It really makes it hard to fund any of the rest of the services that Arizonans rely on.”