How a Medicaid Work Requirement Could Affect New Hampshire’s Economy
New Hampshire has now joined Kentucky, Arkansas, and six other states in gaining approval from the Trump administration to add a work requirement to its Medicaid program. (In some states, including New Hampshire, this requirement is limited to beneficiaries covered through the Affordable Care Act’s Medicaid expansion). In prior blog posts, we examined the economic implications of adding Medicaid work requirements in Kentucky and Arkansas. Work requirements drive down Medicaid enrollment, by making it harder for people to qualify for and keep their coverage. Medicaid is largely funded by the federal government, so these reductions in enrollment translate into reductions in the flow of federal funds to the state. In turn, reduced federal and state funding means fewer dollars available to pay physicians, nurses, other health care professionals, and hospital staff. These payroll reductions generate further spillover effects. One recent estimate suggests that each dollar of federal spending in a local area generates about $1.70 in gains to the local economy.
New Hampshire’s work requirement requires adults in Medicaid’s expansion population to work at least 100 hours per month. Almost all of the costs of Medicaid in New Hampshire, as in all states, for the expansion population are borne by the federal government. In 2019, New Hampshire will pay just 7 percent of the cost of Medicaid for expansion enrollees, rising to 10 percent in 2020 and beyond.
New Hampshire residents pay a relatively small share (just 0.3%) of the federal taxes that pay for the federal cost of the program. Because the state share of the cost of the Medicaid expansion is so low, and the New Hampshire share of federal taxes is so small, almost all of the cost of covering the Medicaid expansion population in New Hampshire is paid by the federal government. That means that the primary fiscal consequence of shrinking New Hampshire’s Medicaid expansion population will be a substantial net loss of federal dollars to the state.
Based on the Urban Institute’s 2013 estimate of the federal costs and coverage effects of the Medicaid expansion, it is possible to calculate on an annual basis what the federal government would have spent on people who will lose their coverage due to the work requirements. Ku and Brantley, using evidence from work requirements introduced in Arkansas and similar regulations imposed in the Supplemental Nutrition Assistance Program (SNAP, also known as food stamps), estimated that the work requirement will cause New Hampshire’s Medicaid expansion enrollment to fall by 30 percent to 45 percent, or between 15,000 and 23,000 people per year.
This would mean that New Hampshire would lose between $114 million and $174 million in federal funds in 2020, equivalent to about 7 percent to 11 percent of the state’s entire general funds budget. The state’s own spending on medical assistance for this group would drop by between $14 million and $21 million, the equivalent of $10 to $15 per resident. Overall, lost federal funding will eclipse reduced state spending by a magnitude of 8.1 to 1.
Federal spending can have a multiplicative effect on in-state spending. Incorporating this multiplier effect suggests that the work requirement could be even more costly to the state, reducing the overall size of the New Hampshire economy by as much as $300 million, or 0.4 percent of state gross domestic product, and reducing employment by more than 2,500 jobs each year.
The federal government — not the state — pays almost all of the cost of covering the Medicaid expansion population in New Hampshire. Imposing a work requirement on expansion recipients is expected to reduce enrollment and, therefore, the federal funds that would flow to the state. This will lead to reductions in state employment rather than an increase, as the legislation intended.