Jay Bhattacharya considers Medicaid policy change that allows states to require eligible patients to work

The federal Centers for Medicare & Medicaid Services (CMS) sent a letter to state Medicaid directors on January 11 announcing a policy change that allows states to experiment with how they deliver the public health insurance for low-income residents of their states. The provision that prompted headlines was its suggestion that state officials seek a waiver to Medicaid regulations allowing them to attach work requirements, or what CMS calls “community engagement,” for eligibility among able-bodied adults.

CMS Administrator Seema Verma said the work requirement among eligible adults would “make a positive and lasting difference in the health and wellness of our beneficiaries.”

In a speech to Medicaid officials in November, Verma criticized the Obama administration for focusing on expanding Medicaid enrollment under the Affordable Care Act, rather than helping the poor move out of poverty and into jobs that provide health insurance.

“Believing that community engagement does not support or promote the objectives of Medicaid is a tragic example of the soft bigotry of low expectations consistently espoused by the prior administration,” she said. “Those days are over.”

So far, the states that have applied for the Medicaid waiver that would allow them to impose the work requirement are Arizona, Arkansas, Indiana, Kansas, Kentucky, Maine, New Hampshire, North Carolina, Utah and Wisconsin. The Kentucky waiver application said it would require most nondisabled Medicaid beneficiaries age 19 to 64 to work at least 20 hours a week.

Medicaid was created in 1965 for families on public assistance and low-income seniors. It is now the nation’s largest health-insurance program and covers 70 million people, or about one in five Americans, and includes pregnant women and newborns, the elderly in nursing homes and people with disabilities.

Opponents of the work requirement say it demonizes the poor and that low-income people will fall through the cracks and could be denied coverage because of technicalities or errors in their paperwork.

We asked FSI senior fellow and Stanford Health Policy faculty member Jay Bhattacharya — a professor of medicine and health economist who is an expert on government policies designed to benefit vulnerable populations — a few questions about the new policy.

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Stanford Health Policy: A study by the Kaiser Family Foundation found that among nonelderly adults with Medicaid coverage — the group of enrollees most likely to be in the workforce — nearly 8 in 10 live in a working family and a majority are working themselves. They also found most Medicaid enrollees who work are working full time but their annual incomes are still low enough to qualify for Medicaid. So who are the Medicaid recipients that the Trump administration is targeting — and to what end?

Bhattacharya: The CMS decision permits states to experiment with work requirements for able-bodied Medicaid enrollees. That is, it does not permit state experiments with work requirements for Medicaid enrollees who qualify because of a disability, or qualify because they are pregnant, or otherwise qualify because of physical or medical incapacity to work. At least as a first cut, the CMS decision permits states to impose work requirements for Medicaid enrollees who qualify through the expansion in Medicaid induced by the Affordable Care Act and does not permit work requirements on traditional Medicaid population who qualified in ways permitted before the ACA. States can also require alternatives to work, including volunteering, caregiving, education, job training and even treatment for a substance abuse problem.

The end goal as stated in the CMS letter is to improve the health and well-being of the able-bodied poor. The logic is that (1) for able-bodied individuals, regular work is an important component of overall health, and (2) all income-linked welfare programs (Medicaid included) induce incentives not to work, or to work less. There is a literature in economics that documents this incentive (see this paper by Aaron Yelowitz.) The mid-1990s welfare reform law required this sort of linking of work and welfare, and CMS argues this decision permits states to align Medicaid with other income-linked welfare programs. If the KFF study is right, the decision will have an effect on a minority (perhaps a substantial minority) of able-bodied Medicaid recipients, since the majority are already working.

Stanford Health Policy: Under current law, can states impose a work requirement as a condition of Medicaid eligibility?

Bhattacharya: For a state to impose a work requirement, they must request a waiver from the Social Security Act to conduct a demonstration project. These waivers are permitted under current law, but are provided at the discretion of the appropriate executive agencies, in this case, CMS. A different administration might decide not to permit these waivers, and I think in general the Obama administration was more reluctant to permit this kind of state experimentation. The main substance of the CMS decision is to broadly signal to states that they will now be willing to provide such waivers.

Stanford Health Policy: Do critics of the work-requirement waiver have valid fears that low-income elderly or disabled people will fall through the cracks on technicalities or challenging paperwork?

Bhattacharya: Paperwork mistakes and problems caused by bureaucratic indifference are always possible when it comes to a program like Medicaid, which has such a complicated variety of paths to qualify. It is an empirical question whether such considerations would be more salient were a state to impose work requirements for a subset of Medicaid enrollees on top of the existing requirements.  Every state has experience with similar work requirements for qualification for other welfare programs, such as temporary assistance for needy families (TANF). Given that, it seems unlikely to me that — because of technicalities or paperwork — additional work requirements would be incorrectly applied to many elderly or disabled people applying for Medicaid.

Stanford Health Policy: Some states have proposed tying Medicaid eligibility to work requirements using waiver authority that may be approved by the Trump administration. What could this mean for Medicaid recipients in those states? In Kentucky, which expanded Medicaid, some state officials have said work requirements could lessen the program’s impact on the state budget.

Bhattacharya: I suppose it could have some effect on state budgets by reducing the number of people who qualify for Medicaid. I anticipate only a small effect on state budgets, though, because through the ACA, the Feds pay 100 percent of Medicaid costs for people who qualify via the ACA’s income provision, although that gradually phases down to 90 percent in 2020 and remains at that level.

Stanford Health Policy: How will the states that do not apply for the waiver, such as the large-population states of California and New York, be impacted by this change in Medicaid policy?

Bhattacharya: States that do not apply for a waiver will maintain their existing requirement for Medicaid qualification, including no work requirements for able-bodied Medicaid enrollees who qualify through the ACA’s Medicaid provisions.