The Hidden Cost of Medicaid Work Requirements

Medicaid work requirements take effect in every expansion state by January 1, 2027. But half the states just sued to stop the rules that govern them. They’re challenging a new federal rule that narrows who counts as “medically frail” and adds paperwork for people trying to prove they’re exempt. We’ll discuss what the fight means for coverage, providers, and for the states preparing to implement.

In our latest episode, David E. Williams (President, Health Business Group) and John Driscoll (Chairman, UConn Health) dig into what these cuts will really cost. They break down the CBO's projections for coverage and dollars over the next decade, and why a last-minute federal rule narrowing the definition of "medical frailty" may be the most consequential, and least understood, piece of the whole debate.

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Transcript

SPEAKER_01 0:00

Medicaid work requirements take effect in every expansion state by January 1st, 2027. But half the states just sued to stop the rules that govern them. They're challenging a new federal rule that narrows who counts as medically frail, and it adds paperwork for people trying to prove they're exempt. We're going to discuss what this fight means for coverage, for providers, and for the states preparing to implement.

SPEAKER_00 0:39

And I'm John Driscoll, the chairman of the UConn Health System. David, what other news do we have today? I've been spending a lot of time on Google myself.

SPEAKER_01 0:48

Well, John, you know, we both celebrated birthdays recently, and I was going to go to Google and search, you know, what they were going to give me for a gift. And lo and behold, John, if you type in healthcare podcasts to Google, the AI comes up with the answer and it says, there's thousands of healthcare podcasts out there, but it says the top one it says is CareTalk, and it says by David Williams and John Driscoll, co-hosts. Oh, so your name is my birthday.

SPEAKER_00 1:12

Your name got listed first again.

SPEAKER_01 1:15

Well, it may have said it the other way around, but I listed it. That's how I read it. Uh it was came across as first. But you know, John, it's a gift.

SPEAKER_00 1:22

It's congratulations to our listeners. I mean, this is all about the wonderful listeners we have, many from healthcare, from all over healthcare in the United States, coming to us to answer questions. And we got a gnarly one this morning, this Medicaid work requirements. I mean, healthcare is complicated enough. And then you get into partisan politics in 51 different systems. This this is the Medicaid is to the the state and federal program really run by the states, but funded at least 50 percent typically by the federal government to take care of the poor. And everything's sort of changing as of January 1. How how did we get here, Dave?

SPEAKER_01 1:59

Well, John, we got here with our birthday month last year when the one big beautiful bill act passed in July 2025. And it was saying that any of the adults that were involved in the Medicaid expansion, which which expanded Medicaid under the Affordable Care Act, have to document 80 hours a month of either work, school, job training, or community service, or somehow prove their exempt. And now we're getting into how that's actually being implemented. And of course, the states have had a year to get ready, and there's some things that are now coming along, John, that are making it a little bit harder for them, and the states are not happy.

SPEAKER_00 2:40

Well, I mean, the this is one of those issues that polls well. Everybody wants folks who can full-time work who are doing nothing else to have an incentive to work. That is something that I think most Americans agree on. And coming out of the pandemic, there was a real concern about, you know, particularly young adults, but honestly, any able-bodied person to get back to work. And you know, unemployment fell. But that remains a really high motivator for folks not to get benefits if they can qualify them for otherwise by full-time work with full benefits or full-time work without benefits and then qualify for Medicaid, except for those who can't work. That is uh seems quite logical to the average voter, but the systems that Medicaid uses to really identify coverage are not identical to those that could validate work or readiness to work. And I think therein lies some of the complexity here. And obviously the Republicans are for these work requirements historically, and the Republicans, the Democrats are against it. The Democrats tend to be more incented, more motivated by covering more people who are poor or near poor, and make sure they get coverage because they don't get coverage, they end up getting sicker, and it it it could it it burdens the entire system because people only then get care when they're very sick. But Dave, how complicated is this for the states to set up a system to verify work?

SPEAKER_01 4:09

Well, it's pretty complicated to do that, but I think they've done it to a reasonable extent. It's something that they can set up, although there's still a lot of then self-service on the part of the Medicaid recipient or would-be recipient to go through all the documentation. I mean, if you've ever been to the, let's say, trying to get your driver's license transferred from one state to the other, and you have to have specific forms and all that, there's a lot of times it doesn't actually work out. And so it's pretty complicated to jump through those hoops, John. And that is part of the point, which we can uh come back to. It's the idea that you're gonna actually have the savings that the big beautiful bill calls for. A lot of that is by people not being able to fill their forms in correctly. That's actually what comes out of it.

SPEAKER_00 4:57

Well, and and a cynics would say that it's just simply by creating more barriers to get coverage. I mean, I I believe you have to verify coverage every four months. If someone is working two or three low-wage jobs, it may be hard to get the time off. I know in my state of Connecticut, the uh those offices historically have been open nine to five when the average full-time worker who would qualify for Medicaid doesn't have time off or can't necessarily organize themselves to even get to that location, let alone have all the documentation they need. So I think the practical reality and historically, the the the um you know, it it has been kind of hard to actually make this work in a way that didn't actually turn people who are full-time workers off of Medicaid.

SPEAKER_01 5:47

So, John, I know you talk about what a cynic would say. And uh one of the first things I remember from starting college in your in your state of Connecticut was they said, you know, cynicism is sort of like a poor, weak substitute for skepticism. And skepticism is okay. In this case, there are consistent findings from where these uh sort of things have been tried at the state level, Arkansas and Georgia, that, including from the Congressional Budget Office, that the work requirements don't actually meaningfully increase employment, but they do increase disenrollment that's driven by just paperwork errors, including and increases medical debt and delayed care. So that is not a cynic's view. That is just what the evidence shows.

SPEAKER_00 6:32

That's that's a really fair point. That the the the that historically, I don't I think in every case this has been tried. What's the result has not been more workers, it's just less health care getting to poor people. And that that is, I think, pretty well validated. Um, the the the administration is making a good faith effort to try to standardize and simplify leveraging technology, the tools that the states would use to verify employment and get access to Medicaid. But that's sort of the first time that's happened in a material way in 30 years. And I and they at least at at a lot of states, that has not had a material impact yet in making it easier. I do think that the uh the leader of Medicaid, Dan Brillman, is working really hard on that. But the history here would suggest you know loss of care versus gain of jobs.

SPEAKER_01 7:25

Yeah. And now, John, this is this is settled from the big beautiful bill from a year ago. There is something new besides just the fact that rules are coming out and and this is going to go into effect, which is a new rule that narrows the definition of medically frail. So a person, let's say, with cancer, with HIV, has been considered exempt from needing to work, the same way someone who's pregnant or disabled or um you know caring for young children has been exempt. And what's this rule is doing is it's saying it's no longer enough to go into the electronic medical record and say the person's being treated for cancer and therefore they have cancer and they're exempt. They now have to uh document it in some other way, which isn't defined. And the states are arguing this has happened at the last minute when the informal guidance had not suggested that at all.

SPEAKER_00 8:25

Yeah, I think I think that that you know it's important to acknowledge that this is this is going to affect all of the substantial coverage that was created in the 41 Medicaid expansion states. And that there are exceptions for this were 80 hour a month requirement for pregnancy, caregiving for young children, um d disability, addiction treatment, people meeting the current food stamp or snap and tanaf requirements. And they had indicated medical frailty. I do think that that is a, to your point, an undefined term. And as they've gotten closer and closer to the end of the year, have come up with this new definition that I think is uh I still think is somewhat imprecise the way I read it, and certainly is a narrower lane than the initial enabling legislation suggested. But I think this whole thing is going to be complicated to implement, frankly. And I don't and I don't know that we've got a path. I mean, there's a lot of focus on this medical frailty piece, but I think a lot of states aren't ready for the January 1 implementation. Um but let's say on the medical frailty piece, you know, to a um, you know, it's not a term of of uh it's it's more of a term of art than science. And I think what what the federal government realized is that if the they really want to push this uh work requirement piece, they had to be more precise. And I think they just got there later in the year, and I think that's triggered um I think it's how many states are suing them now on on this term? Is it about 18?

SPEAKER_01 10:08

It's 20, it's 25 states plus the District of Columbia.

SPEAKER_00 10:12

Yeah, amazing.

SPEAKER_01 10:14

So it's a lot. You know, and John, I think, you know, to be I don't want to say to be fair because I don't think we ever promised to do that, but in order to give an argument that would be accepted by more people, you could look at it and say, okay, if you just put medical frailty, well, that's just like a big exemption, and you could claim you're frail for, you know, for whatever reason. I think the challenge is it's not that they've defined it more precisely. They've just said it's not enough to use the documentation that they had previously said was legitimate. And the basis of the lawsuit is that the administration is going beyond what was legislated, and that they're therefore uh violating uh certain laws uh that exist uh in order to prevent that. So there's the the Administrative Procedure Act and then just the spending clause of the Constitution. So they're saying you're just not allowed to do what they're doing. That's the essence of the lawsuit. Trevor Burrus, Jr.

SPEAKER_00 11:11

Just to be clear, it was, I believe, his initially the informal guidance was if you can show that you're medically frail through a documented medical record through a credible medical claim, that that you could show that you were too sick to work if effectively. And now there is, I think, an external requirement that says it's not it's not enough that historically you can show that you're I'm just gonna use our more conventional friends of too sick to work, that you have to prove your medical frailty. But I'm not sure it's exactly defined.

SPEAKER_01 11:44

No, it isn't. It isn't, John. And that's and that's part of the point. So and and this gets back to also what happened. So the states have been trying to uh you know mitigate the effect of this. In other words, they're trying to make it so that people that are legitimately eligible uh stay insured. And so they've spent a lot of time putting together eligibility systems, they're drafting notices to members, they've been hiring staff. And then and they by the way, they they face financial penalties if they don't hit the deadline. So they've they've definitely been on top of it, and they're saying, whoop, there's this rule change now with weeks to spare, and it's not going to work for them. Now, what has worked, what would in general where you see these changes is good sort of customer service, lead time, peer support, clear communications, and states that are trying to do that are finding, oh, they're being cut off.

SPEAKER_00 12:38

Again, Medicaid covers the entire U.S. population, so rural, urban, suburban. Um this is a brand new requirement for Medicaid that is a universal program. There's a lot that needs to change to get this right. And to get it right in a way that can keep eligibles working. Um eligibles could find themselves on Medicaid and working full-time and lose their job because they're too busy chasing paperwork quarterly, or they could keep their job and lose their coverage. Um, I think there's a the there's always a tension on these new programs where the states say we're not ready because the states are never ready, and the feds put hard deadlines. What makes this more complicated is they, at least in the States view, change the final rule within a quarter of the time that the states have to implement it. But David, is there an optimistic side to this? Do you think there's a possibility that this will add to more employment and fewer people on Medicaid, and we'll be in the happy circumstance that a that what the bulk of America wants, which is that you know free medical benefits only go to those who are who are you know uh uh able-bodied and working, or the very sick who are not able-bodied who cannot work?

SPEAKER_01 13:52

No, John, I don't think so. Um and in the reason I say that is if you look at you, we you talked about Arkansas before, if you talk about Georgia, so Georgia, which was not a full Medicaid expansion state, put together a program called Pathways to Coverage. And that's actually what um Republicans cited as a model for this federal law. Now, this was a more positive one that said basically, hey, you can get Medicaid if you could show that you're working. And the same sort of thing: 80 hours a month, you're at work, school, volunteering, and it was a way to get in. Now, they said that they were gonna have um they they made a projection of how many people they were gonna have, and they only hit 17% of that. So only 4,200 people actually enrolled in the first year, and as of 18 months in, it was only 6,500. And there were probably 240,000 that were potentially eligible. Yeah, it's a massive number they missed. Yeah. So people, you know, they showed interest, but then it's sort of like, okay, I have to fill this in. It's it's like pretty difficult. And there was technical glitches, and the, you know, the sign-up and verification systems weren't weren't that good. So they spent $58 million, which is about $13,000 per enrollee. And it's almost all spent on administration, and it's not spent actually on on care. So it's um GAO did a uh report on this later, and they said the administrative costs were $54 million uh versus the healthcare cost of $26 million. So if that's kind of continued on. So this was a this was a friendly version of state was actually trying to get this program to succeed. Um, they only required actually annual re-verification instead of uh instead of more frequently as you as you described. And so, yeah, I think it's gonna be a challenge. Now, the counterpoint is that in Georgia, okay, a little piece of positivity perhaps. So they were, they didn't, Georgia says, hey, we didn't say pathways was to maximize enrollment. And in fact, we think that, you know, the Georgia Access Marketplace plus the Pathways approach would cover covers more people than traditional expansion would have would have done. I'm not sure if that's true, but that's at least what they would argue.

SPEAKER_00 16:01

Aaron Powell Well, another possible path is you know the Montana is trying to do it carefully. It's already started implementation. They added 60 new staff. There's a three-month grace period with informational services instead of immediate disenrollment and referrals to job services. So I think some of the states are actually trying to do this in a pretty sensible way to m to sort of manage this tension. Um but you know, I still think there will be because of the how hard it is to set up, because this is an entirely new muscle for the states, um, and we're changing requirements last minute, it's really hard to believe that um we won't lose a lot of Medicaid eligibles off of the rolls. And the hard part is for folks who are outside of health care, folks who are inside healthcare know what that means. It just means more uncompensated care for hospitals that are already kind of struggling under the this administration, particularly rural hospitals. You know, we've had the loss of hundreds and hundreds of rural hospitals. Now the Federal Government's come in with this rural transformation initiative where they're investing in upgrading the technology. But ultimately, you know, hospitals are really kept alive because they have an ability to pay for the care that they are required to give to anyone who walks in the door. And this is going to put a lot more burden on those hospitals, particularly in um in rural areas.

SPEAKER_01 17:27

Well, John, I I I hesitate to go out on a limb too much on Montana because I'm not specific I'm not familiar with the specifics of the program that they're doing now. But as a rural state, it's one where these uh providers in the rural areas absolutely require um rely heavily on Medicaid. So regardless of your political orientation, uh less fewer people coming in the door that have a mechanism for reimbursement means more burden on those on those healthcare providers.

SPEAKER_00 17:57

Oh, there's no question. I mean, because they're already feeling it. I mean, there there is a um I mean the and and the Congressional Budget Office is suggesting, you know, that they're they're they're uh by 2034 will uh lose about set 5.3 million people off of Medicaid and and then with six month return determination lose another and three-quarters of a million, and that will result in a $326 million cut to Medicaid spending over ten years.

SPEAKER_01 18:31

Billion, John. Big B. This is where most of the money is this is the most of the savings. This is most of what justifies the the big beautiful bill tax cuts economics.

unknown 18:43

Yeah.

SPEAKER_00 18:43

So we're we're effectively they're effectively projecting um $300 billion-ish over ten years in reduction in spend, which is hard to believe from my perspective, because I think of it from a hospital perspective, you're still going to have to spend the money to justify a lot of the tax cuts that were in that bill or or or tax you know, all kinds of new of ways to avoid paying taxes that would otherwise turn into government revenues, funded by this uh these med these Medicaid changes. Now, I do think that there is a there probably are smart ways to go at this, um, to get able-bodied people working and leveraging incentives. I just don't know whether running it all through state Medicaid programs based on the experiences of the affirmative states, Arkansas and Georgia, that were trying to do it right, um got it wrong. So I'm I'm I'm pretty skeptical here, even though I understand the you know what what the the American public at the headline level sort of thinks this is a good idea. At the street level, I think it's gonna be a problem.

SPEAKER_01 19:51

So, John, let's close out on a couple topics. One is there is this lawsuit that's pending, and let's predict maybe what the court will do and what impact that would have. And then secondarily, I mean, I think we both agree that it's good to have more people working. Let's let's see if we can come up with some ideas that may not be healthcare related about that. So, first in terms of the this court ruling, so you know, if they block the rule before August 31st, is that going to happen and what impact will that have, if so?

SPEAKER_00 20:18

Aaron Powell You know, I'm I'm the son of a lawyer, not not and not a jurist. But I think that there are it'll it'll it'll depends on the facts and circumstances and what they bring balancing their obligations with the fact that the federal government does pay for 50% of the state programs and really sets the regulations. Just because the regulations are a little crazy in the eyes of or or in or in or insufficient, it will come down to some process questions about whether they handled the process of change correctly and what the standing and the merits of the arguments they the states are making. But I can't really speak to that. I think it's sort of a last-minute attempt. And I'm, again, given the this administration's success with the courts, I suspect it will might be delayed, but it's not going to be denied. Just one guy's perspective.

SPEAKER_01 21:08

Aaron Powell I think that's right, John. And even let's say if you take the maximalist view, uh it's just gonna change the medical frailty provisions and the overall law and the work requirements go into effect January 1.

SPEAKER_00 21:20

That's the bigger point. So the bulk of the CBO $300 plus billion dollars of Medicaid cuts. Oh now that's over 10 years. So 30 billion plus per year that were used to fund the uh the tax cuts to uh our friends and neighbors, um, but not to take care of the poor, those largely are going to go into effect, and that is going to shift a cost burden to health care for sure, hospitals, doctors, nurses, uh vulnerable uh rural hospitals. And I think that's that's the part we have to watch carefully.

SPEAKER_01 21:58

So, John, let's talk about increasing the labor force participation uh rate and maybe tie it into healthcare or public health. Do you have any thoughts about how to do it, if not by just making it harder for people to get Medicaid if they don't work?

SPEAKER_00 22:12

Aaron Powell I I think we have to really look at uh reinvesting in vocational work and practical work, really expanding and investing in the community college system that we have throughout the country that has been underfunded historically and really focus it towards uh towards work. I mean, we've got a a wonderful small satellite of the Yukon health system. We're in uh Waterbury, where we could we have the ability to kind of um increase our capacity to educate nurses and and we're actively looking at it. And I think there's uh an enormous demand for tech talent and care talent and clinical talent. And healthcare is one of the fastest growing categories of employment in America, and we should think about getting more Americans who aspire to care for others, and there really are more Americans who want those jobs than we have slots, and fund the expansion so that we can actually care for the communities that you and I talk about every day and educate them. But I think that's the biggest, if if I were to look at an inflection point in terms of getting more people employed, let's get more people trained and leverage the tools, leverage the institutions we've got.

SPEAKER_01 23:25

Let me add to that, John, by talking about maybe at the other end of the maybe the age spectrum or the career spectrum, a lot of people have to retire earlier than they had planned and earlier than they're financially ready for because of their their health or the health of somebody they have to take care of uh doesn't allow that. And so I think some focus on terms of chronic illness, um, reduction of obesity or wellness sorts of initiatives that get people moving may enable people to work uh longer, and that's gonna be uh important for the workforce, especially as we have less integration. Another bonus, John, other than it adds to the big beautiful bill act's uh chance of being successful. Well, John, it's uh I say happy birthday, you know, but I didn't feel like a real happy birthday episode. If I if I knew we were gonna be so negative, I you know I would have made it a lot of things.

SPEAKER_00 24:18

We ended up with positives, David. It's a moment.

SPEAKER_01 24:21

I'll hire you, John, to be co-host of Care Talk anyway. So let's just say that's it for another episode of Care Talk. We've been talking about Medicaid work requirements, attempts by the feds to make them more onerous than what Congress had enacted, and also wonderful things, John, like how well our podcast is doing on Google and how good you're looking for a man if you're age.

SPEAKER_00 24:40

Just just recent haircut, Dave.

SPEAKER_01 24:43

That looks good. So I'm David Williams, president of Health Business Group.

SPEAKER_00 24:47

And I'm John Driscoll, the chair of the UConn Health System. If you like what you heard or you didn't, we'd love you to more of you to subscribe on your favorite service. And thank you very much for making us number one on Google.