Health Care

States turn to work requirements to fight escalating Medicaid costs

November 13, 2018

Kaitlyn Finley

Lured by “free” federal money, many states expanded their Medicaid programs to able-bodied, childless adults. Estimates of how many people would sign up, and how much it would cost per person, turned out to be too low, resulting in fiscal nightmares for state budgets. Now, some of those states are turning to reforms in order to keep Medicaid sustainable.

Consider Arkansas’ experience with expansion and its recent reforms.

In 2014, Arkansas implemented Medicaid expansion and extended medical welfare benefits to able-bodied adults. Due to inaccurate enrollment and cost projections by the Arkansas Department of Human Services, the state’s unforeseen costs amounted to nearly $80 million in the first 18 months of the program.

Faced with such heavy recurring costs, Arkansas looked for reforms.

This past June, Arkansas was the first state to implement new work requirements for Medicaid expansion enrollees through the federal waiver process. Certain enrollees are required to work 80 hours each month or participate in qualifying volunteer work in order to receive Medicaid benefits. Those who are medically frail, full-time students, or caregivers are exempt.

Arkansas’ Medicaid work requirements were modeled after the success of earlier work requirement programs in states like Kansas.

In 2011, Kansas found that after updating its work requirements for the state’s cash assistance welfare program, Temporary Assistance for Needy Families (TANF), the number of able-bodied individuals reapplying for the welfare program decreased by 78 percent over the following five years. The Kansas Department of Labor tracked families that were able to leave TANF and found their incomes increased by an average of 104 percent in the first year. These earnings more than offset the lost benefits from the cash assistance program.

State Medicaid data compiled by the Foundation for Government Accountability (FGA) show 6.8 million out the total 12.4 million Medicaid expansion enrollees across the United States are not working. If similar work requirement measures are added to each state’s Medicaid programs, taxpayers could save $430 billion over the next five years, according to FGA’s estimates. These reforms are crucial for the long-term security of state budgets.

Year after year, state Medicaid expenditures continue to rise and account for a larger portion of state spending. According to the National Association of State Budget Officers, Medicaid spending accounted for 29 percent of total state spending in fiscal year 2017—the single largest component of total state expenditures. It’s no wonder why other states are following Arkansas’ example for work requirements. So far, three other states—Indiana, Wisconsin, and New Hampshire—have received approval from the Trump administration for their Medicaid work requirement waivers; nine other states’ waivers are currently under review by the U.S. Department of Health and Human Services.

In May, Gov. Mary Fallin signed House Bill 2932 and Executive Order 2018-05 to include work requirements for Oklahoma’s Medicaid program, SoonerCare. According to email correspondence with Oklahoma Health Care Authority (OHCA) officials, the waiver is still under review by the Oklahoma Governor’s office, and OHCA had not submitted it to the U.S. Secretary of Health and Human Services as of November 7.

Work requirements are only one way to reform Medicaid programs. States must also look to new technologies, such as artificial intelligence and blockchain technology, to increase efficiency and drastically decrease administrative costs. Oklahoma has taken a step in the right direction by passing legislation to increase the frequency of audits and use outside contractors to assist with the audits.

There are many more ways Oklahoma and other states can reform Medicaid programs. More substantial reforms, however, require federal legislation. Converting federal contributions into block grants for states’ Medicaid programs, for example, would give states more autonomy and flexibility over the welfare program. Unfortunately, this solution relies on Congress to act.