How a Medicaid Work Requirement Could Affect Arkansas’ Economy
A growing number of states are requiring residents to report a certain number of hours of work per month as a condition of Medicaid eligibility. Arkansas’s work-requirements program launched last June, making it the first such initiative to go into effect. As we highlighted in a recent post on Kentucky’s work requirements, these programs have negative implications for state economies. By imposing additional eligibility restrictions, work requirements drive down Medicaid enrollment, which translates into reductions in the flow of federal funding to a state. In turn, reduced federal and state funding means fewer dollars are available to pay physicians, nurses, other health care professionals, and hospital staff. These payroll reductions can cascade into spillovers for the broader state economy. In this post, we estimate how much federal money the state can expect to lose in 2020.
Arkansas’s work requirement applies to its Medicaid expansion population. In Arkansas, as in all states, almost all of the cost of Medicaid for these enrollees is borne by the federal government. In 2018, Arkansas will pay just 6 percent of the cost of Medicaid for expansion enrollees, rising to 7 percent in 2019 and to 10 percent in 2020 and beyond. Moreover, Arkansas residents pay a relatively small share (just 1.1%) of the federal taxes that cover the federal cost of the program. Because the state share of the cost of the Medicaid expansion is so low, and the Arkansas share of federal taxes to finance it is so small, the primary fiscal consequence of shrinking the number of people covered through the Medicaid expansion in Arkansas is a substantial net loss of federal dollars to the state.
Arkansas’s waiver proposal did not include estimates of the impact of the state’s work rules either on Medicaid enrollment over time or on federal Medicaid spending. However, the state has published reports since the June implementation showing an enrollment decline of 4,353 in September and 4,109 in October. And Erin Brantley and Leighton Ku released estimates today showing that Arkansas Medicaid expansion enrollment will decline by between 30,700 and 48,300 people per year. Using these estimates, together with the Urban Institute’s 2013 estimate of the federal costs and coverage effects of the expansion, it is possible to calculate what the federal government would have spent per year on people who will lose their coverage because of the work requirements. We find that Arkansas would lose between $220 million and $340 million in federal funds in 2020. The state’s own spending on medical assistance for this group would drop by $25 million to $40 million. Overall, lost federal funding will eclipse reduced state spending by a magnitude of 8.6 to 1.
Imposing a work requirement will generate state savings of just $8 to $13 per resident per year. In exchange, Arkansas will forgo federal funding equal to about 5 percent of its total state tax revenue collection — or between $71 and $112 per resident.