Adding a Work Requirement to Medicaid Could Hurt Kentucky’s Economy
In January 2018, the Centers for Medicare and Medicaid Services approved a waiver of Medicaid rules requested by the state of Kentucky. Under the HEALTH (Helping to Engage and Achieve Long-Term Health) waiver, Kentucky will require an estimated 350,000 able-bodied Medicaid beneficiaries who are not primary caregivers and/or pregnant to work, complete job training, or volunteer at least 80 hours a month in order to maintain their coverage.1 Kentucky argues that the program will increase labor force participation and makes economic sense for the state. However, analyses have shown that work requirements such as these are unlikely to lead to any meaningful increase in the number of people who work, and may actually lead to work reductions among some vulnerable populations.2
There’s an even more direct way that work requirements don’t make economic sense. According to Kentucky’s own calculations, the Medicaid waiver will reduce the flow of federal funds to the state by nearly $700 million annually by 2021, while reducing state spending, and taxes paid by state residents, much more modestly.3 That’s $700 million that won’t be paid to Kentucky doctors, nurses, hospital custodial staff, and other health care workers — which they won’t, in turn, spend on groceries, home improvements, or other goods. In addition to harming the health of those losing Medicaid coverage, this net reduction in federal funds will surely harm, not help, the state’s economy.4
Analyses by the state and outside estimators suggest that the new Medicaid work requirements will lead to about 95,000 fewer Kentuckians benefiting from Medicaid coverage over the next five years. Of these, an estimated 80,000 will be people that gained coverage through Kentucky’s Medicaid expansion under the Affordable Care Act (ACA); the remaining 15,000 will be people who were eligible prior to the ACA.
The costs of coverage under Medicaid are shared between Kentucky and the federal government. Kentucky is responsible for 28.8 percent of Medicaid spending for those eligible for coverage prior to the ACA. For those eligible for coverage under the ACA, Kentucky’s share will rise from 6 percent in 2018 to 7 percent in 2019 and to 10 percent in 2020 and beyond. For both populations, the vast majority of Medicaid costs are borne by the federal government.5
This shared financing arrangement means that by implementing restrictions on Medicaid enrollment that will likely reduce the number of enrollees, Kentucky will give up substantial federal funds. By 2021, when the waiver effects are fully in place, Kentucky will forgo about $680 million annually in federal funds. Kentucky residents will benefit very little from lower taxes as a result of this reduced federal spending — 99 percent of any federal savings will accrue to residents of other states (since Kentuckians contribute just 1 percent of all federal income taxes). By contrast, the state’s own expenditures, funded through state tax obligations, will decline by just $120 million in 2021. At a per-capita level, the net-of-taxes reduction in federal funds will amount to about $150 per Kentucky resident. The savings in state tax obligations will be just $28 per Kentucky resident. The annual loss in federal funds to Kentucky by adding work requirements to Medicaid will be of a magnitude similar to the state losing its entire federal highway program funding each year.6
People covered by Medicaid are the most direct beneficiaries of the federal and state funds that pay for the program.7 But the funds themselves flow to hospitals, physicians’ offices, clinics, and others health service providers — which, in turn, use this funding to pay salaries for doctors, nurses, aides, administrators, custodians, and others and to purchase goods and services, from pharmaceuticals to hospital meals. Finally, recipients of these services use the funding to buy consumer goods and pay their own taxes. Because the bulk of Medicaid funds come from outside the state, cutting off the flow of these funds will not be offset by lower taxes within Kentucky. Instead, recipients at every stage of this cascade will simply have less to spend.
2 H. Katch, J. Wagner, and A. Aron-Dine, Medicaid Work Requirements Will Reduce Low-Income Families’ Access to Care and Worsen Outcomes (Center on Budget and Policy Priorities, Feb. 2018), https://www.cbpp.org/research/health/medicaid-work-requirements-will-reduce-low-income-families-access-to-care-and-worsen.
3 Kentucky HEALTH waiver, https://chfs.ky.gov/agencies/dms/Documents/HEALTHWaiver.pdf.
4 B. D. Sommers, K. Baicker, and A. M. Epstein, “Mortality and Access to Care Among Adults After State Medicaid Expansions,” New England Journal of Medicine, Sept. 2012 367(11):1025–34.
5 L. Snyder and R. Rudowitz, Medicaid Financing: How Does It Work and What Are the Implications? (Henry J. Kaiser Family Foundation, May 20, 2015), https://www.kff.org/medicaid/issue-brief/medicaid-financing-how-does-it-work-and-what-are-the-implications.
6 S. Glied and S. Ma, How States Stand to Gain or Lose Federal Funds by Opting In or Out of the Medicaid Expansion (The Commonwealth Fund, Dec. 2013), https://www.commonwealthfund.org/publications/issue-briefs/2013/dec/how-states-stand-gain-or-lose-federal-funds-opting-or-out.
7 Kaiser Commission on Medicaid and the Uninsured, The Role of Medicaid in State Economies: A Look at the Research (Henry J. Kaiser Family Foundation, Jan. 2009), https://kaiserfamilyfoundation.files.wordpress.com/2013/01/7075_02_es.pdf.