How National Medicaid Work Requirements Would Lead to Large-Scale Job Losses, Harm State Economies, and Strain Budgets

Abstract

• Issue: Through the budget reconciliation process, Congress could mandate that all able-bodied adults with Medicaid work at least 20 hours a week (or participate in “community engagement” activities) to retain their coverage. Congress also could lower the federal government’s Medicaid matching rate for the District of Columbia (DC), a move that would force restrictions in eligibility and possibly reductions in benefits. Prior research demonstrates work requirements do not lead to significant employment gains.
• Goal: To estimate the state-level economic, employment, and budgetary impact of a nationwide Medicaid work requirement and a reduction in DC’s federal Medicaid matching rate.
• Methods: We used the IMPLAN economic modeling system to analyze these effects, building on prior estimates from the Urban Institute.
• Key Findings and Conclusions: Between 4.6 million and 5.2 million adults could lose Medicaid in 2026 if work requirements are imposed, cutting federal funding to states by $33 billion to $46 billion in the first year and $362 billion to $504 billion over a decade. States overall could see a $43 billion to $59 billion reduction in economic activity in 2026; a loss of 322,000 to 449,000 jobs; and a $3.2 billion to $4.4 billion reduction in state and local tax revenues. The DC matching rate reduction would cut $712 million in federal funding in 2026 and lead to 7,300 total jobs lost in DC and neighboring states.

Introduction

The Republican-led Congress has passed a “concurrent budget resolution” under which leaders of the House of Representatives and the Senate have agreed to identify at least $1.5 trillion in savings as part of budget reconciliation legislation to be enacted later this year.¹ An earlier Commonwealth Fund brief examined the potential economic effects of cutting funding for Medicaid by $880 billion over 10 years and funding for the Supplemental Nutrition Assistance Program (SNAP) — food stamps — by $230 billion.² In this brief, we focus on two specific proposals that could be under discussion for budget reconciliation legislation: mandatory work requirements for people with Medicaid, and a substantial reduction in the federal funding matching rate for the District of Columbia’s Medicaid program (DC Healthy Families).

A frequently discussed policy proposal is to impose mandatory work requirements on people enrolling in Medicaid.³ States would have to require certain adults with Medicaid coverage to work at least 20 hours a week — or be engaged in “community engagement” activities, such as volunteering — to retain their coverage. The details of who would be required to work, who might be exempted, or how the requirements would be structured are not yet clear. One prominent work requirements proposal, included in the Limit, Save, Grow bill from 2023,⁴ would cause 1.5 million Medicaid beneficiaries to lose their eligibility and result in a $109 billion cut in federal Medicaid expenditures between 2025 and 2033, according to an analysis from the nonpartisan Congressional Budget Office (CBO).⁵

During the first Trump administration, a number of Republican-led states sought to adopt Medicaid work requirements through demonstration projects. However, in 2019, federal courts halted approval of these projects (except Georgia’s Pathways to Coverage demonstration) after determining that the resulting enrollment loss ran contrary to the Medicaid program’s central objective — to provide health coverage.⁶ In December 2024, the general counsel of the U.S. Department of Health and Human Services (HHS) advised that state demonstrations were impermissible.⁷ Nonetheless, many states have renewed their interest in work requirements, hoping the new Trump administration might approve them.⁸

There have been numerous analyses of the potential benefits and hazards of work requirements.⁹ The consensus, based on evidence from the Arkansas and Georgia demonstrations as well as similar policies implemented nationwide for people receiving SNAP benefits, is that:

• Most adults with Medicaid either already work or should be exempt from work requirements because they are unable to work. Federal data show that 64 percent of Medicaid adults worked full or part time, 12 percent were caring for dependents, 10 percent were disabled or in poor health, and 7 percent were attending school. Just 8 percent were not working or unable to find work.¹⁰
• Many people lose their Medicaid benefits, and thus their health care coverage, after work requirements are imposed.
• Many of those losing benefits are actually employed, or should be exempt but lose their benefits anyway, owing to confusing paperwork requirements. For example, one study found that merely lacking internet access made people more susceptible to losing their benefits, owing to the difficulties this poses to meeting compliance reporting obligations.¹¹
• Any gains in employment or income are minimal. That’s because work requirements fail to address the underlying reasons for unemployment, such as lack of proper job training, reliable transportation, or childcare support, or because too few jobs are available in their areas. CBO concluded that Medicaid work requirements would “have a negligible effect on employment status or hours worked by people who would be subject to the work requirements.”¹²

For our analysis of the potential effects of a mandatory Medicaid work requirements policy in budget reconciliation legislation, we drew in part from recent Urban Institute estimates of the number of Medicaid enrollees losing coverage if work requirements were imposed on able-bodied adults ages 19 to 55 who have no dependents and who are covered under the Affordable Care Act’s Medicaid eligibility expansions. Based on evidence from Arkansas and New Hampshire, the analysis estimated that 4.6 million to 5.2 million Medicaid beneficiaries would lose their coverage in 2026, or 34 percent to 39 percent of this population, after adjusting for exemptions and participation rates.¹³

These findings are consistent with our estimates of the impact of similar SNAP work requirements imposed nationwide. We also found that SNAP work requirements harmed Black recipients more than white recipients and that adults with disabilities, who were supposed to be exempt, also lost benefits.¹⁴

A different study looked at a broader work requirement policy targeted at people ages 19 to 64, including nonexpansion beneficiaries. It concluded that 10.1 million to 14.4 million Medicaid beneficiaries could potentially lose their coverage.¹⁵ Of course, future congressional proposals might differ from either of the policies modeled.

In this brief, we estimate the federal Medicaid funds that states would lose if work requirements were implemented in 2026, based on the Urban Institute’s estimates of coverage losses and state-level costs per enrollee. We then computed state-level changes in state gross domestic products (GDPs) and employment based on these federal funding losses. To do this, we used IMPLAN, a widely employed economic modeling system. (For more details, see “How We Conducted This Study.”)

We also estimate the impact of a budget proposal to reduce the funding that the federal government contributes to the District of Columbia’s Medicaid program. The current federal matching rate is set in statute at 70 percent; the proposal would reduce the match to 50 percent. Our analyses also show the interstate consequences of Medicaid policy changes. For example, even though the federal funding proposal directly affects DC only, the repercussions would ripple out to harm Maryland and Virginia’s economies, too.

Key Findings

Impact of Medicaid Work Requirements

Loss of federal funding. Using the Urban Institute’s coverage estimates and state-based estimates of federal Medicaid expenditures per adult in 2026, we estimate the 40 states and DC which expanded Medicaid eligibility will lose between $32.9 billion and $45.9 billion in federal funding in 2026. The 10 states that did not expand Medicaid would not lose federal funds. These results are summarized in Table 1, with more detail about all states in Table 2 and Table 3.

Assuming implementation in 2026 and a Medicaid growth rate similar to CBO’s budget baseline,¹⁶ this is equivalent to a cumulative federal funding cutback of approximately $362 to $504 billion from 2025 to 2034 (data not shown) — the budget period used in the concurrent budget resolution.¹⁷ This is substantially higher than the $109 billion reduction over 10 years that CBO estimated in April 2023. That is likely because the Urban Institute’s estimates of coverage loss are based on more recent, better-documented evidence of coverage losses than CBO had available when it made its estimates. In addition, we used updated estimates of the costs per person, as discussed further below.¹⁸

Reduction in economic activity. We used the estimated loss of federal funding to states’ health care providers to estimate state-level changes in states’ economies, as measured by their gross domestic products (GDPs), employment, and state and local tax revenues. Detailed results for all 50 states and DC are shown in Tables 2 and 3. Nationwide, state GDPs are expected to fall between $42.6 billion and $59.5 billion in 2026. Because of the economic multiplier effect, explained below, this is substantially more than the value of federal funds lost.

Most of the state economic losses occur among the 40 Medicaid expansion states and DC ($41.6 billion to $58.0 billion), but even states that have not expanded Medicaid experience economic losses ($1.0 billion to $1.5 billion). This is because of the interconnectedness of the U.S. economy: losses in Medicaid expansion states ripple out to cause losses in nonexpansion states. For example, Texas, which has not expanded Medicaid and would not directly lose federal funding under this version of work requirements, still sustains economic losses between $402 million and $564 million and loses 2,800 to 3,900 jobs because of the spillover effect of Medicaid work requirements imposed in other states. Some of the Medicaid funding losses that begin in neighboring New Mexico, Louisiana, Arkansas, or Oklahoma could affect Texas residents, in part because of related supply chain disruptions.¹⁹

Job losses. Nationwide, federal funding losses would lead to the loss of 321,700 to 448,900 jobs in 2026. Slightly under half the jobs lost (148,100 to 206,500) would be in health care, including jobs in hospitals, doctors’ offices, clinics, and pharmacies. The remaining jobs (173,600 to 242,400) would be in other business sectors, such as retail, construction, food production, and other fields. Most of the job losses would occur in states that expanded Medicaid (313,800 to 437,900). However, even the 10 states that have not expanded Medicaid and have no direct federal funding reductions would lose about 7,900 to 11,000 jobs — again, owing to the interconnectedness of state economies.

Prior evidence clearly demonstrates that work requirements do not significantly increase employment or earnings.²⁰ This analysis shows that Medicaid work requirements would in fact cause hundreds of thousands of people to lose their jobs, because of the substantial reduction in federal Medicaid funding. Those losing jobs will be health care workers and others working in other diverse businesses; very few are likely to be Medicaid beneficiaries. In fact, certain workers not currently covered by Medicaid may lose their jobs because of the economic disruptions — such as some workers with disabilities — and therefore become eligible for Medicaid.²¹

Lower state and local tax revenues. Reduced individual and business incomes will mean a loss of tax revenue for state and local governments. State and local tax revenues will fall by $3.2 billion to $4.4 billion in 2026. Mostly this will affect the 40 Medicaid expansion states and DC ($3.1 billion to $4.3 billion), but the 10 states that have not expanded Medicaid will also lose about $78 million to $110 million in tax revenue. This revenue loss could make it harder for state and local governments to support other programs and services, like education and infrastructure.

Impact of Reducing DC’s Federal Matching Rate for Medicaid

The 1997 DC Revitalization Act sought to stabilize the District of Columbia’s finances under home rule, with support from both then House Speaker Newt Gingrich and President Bill Clinton. In light of DC’s need to meet both state and local responsibilities, the law elevated the basic federal Medicaid matching rate from 50 percent to 70 percent.²² A recent policy proposal would lower DC’s regular matching rate to the rate that other states receive, which, based on DC’s per capita income, would be 50 percent.²³ If we assume that other statutory matching rates continue, such as the 90 percent match for Medicaid eligibility expansions, this would lower federal funding for DC by $712 million in 2026.

To accommodate such a loss, DC would have to drastically reduce the number of residents currently eligible for Medicaid, specifically individuals in optional eligibility groups, such as people with higher incomes, including those who are elderly or disabled, and some children. Officials also would have to restrict benefits, lower payment rates for health care providers, or both. The uninsured rate in DC, which has been one of the lowest in the nation, would likely rise sharply.

Our analyses indicate that this policy would not solely affect DC. Because of the interstate economic repercussions, Maryland and Virginia also would experience significant harm, while other states would sustain smaller impacts. For example, we estimate that 7,300 jobs would be lost because of the federal funding loss, with 5,200 jobs lost in DC, 800 in Maryland, 800 in Virginia, and 500 in other states. The GDP for DC would fall by $656 million, while Maryland’s GDP would decline by $101.5 million, Virginia’s by $96 million, and other states by $72 million. Tax revenues for DC would fall by $30 million in 2026, while Maryland loses $11 million, Virginia loses $10 million, and other states lose $6 million in state and local tax revenues (Table 4).

Our estimates of interstate losses are probably underestimated. Our model assumes that all health care revenue losses occur within DC, but we recognize that DC’s Medicaid program actually pays some health care providers in Maryland or Virginia for services or medications received by DC Medicaid beneficiaries. If we had been able to include relevant estimates, the losses to Maryland and Virginia would be higher.

(Note that if Medicaid work requirements are also imposed, the impact of changing DC’s Medicaid matching rate would be reduced, since work requirements would separately lower DC’s Medicaid funding by $196 million to $276 million, according to the estimates we present above. Thus, the combined impact of the two policy options would be less than the sum of the two separate estimated effects.)

Discussion

Our analyses of Medicaid work requirements and changes to DC’s federal matching rate show how federal Medicaid budget cuts have serious economic, fiscal, and employment repercussions. These consequences are in addition to the serious harm that could occur to people with low income, many of whom would lose their health insurance coverage and access to care, potentially jeopardizing their physical, mental, and financial health.

The harm would extend to businesses, such as hospitals, clinics, and pharmacies, as well as to the providers of health services in these businesses, cascading down the supply chain and ultimately to workers and consumers all across the states. In addition to the job losses, some health care providers, especially those in rural areas, could be shuttered.

Our findings demonstrate a paradox of Medicaid work requirement policies: rather than bolstering employment — as claimed by proponents — they could actually reduce employment and people’s earnings.²⁴ As noted earlier, prior research, confirmed by CBO,²⁵ indicates that work requirements fail to address the underlying reasons for unemployment and do not increase employment or earnings. Our analyses indicate that work requirements would trigger the loss of hundreds of thousands of jobs across the country.

Our findings also demonstrate the broad economic repercussions of such deep federal budget cuts. While the economic harm begins with health care providers and their staff who lose Medicaid revenue, the losses ripple through to other businesses and their employees, to lower purchases of consumer goods and eventually lead to lower state and local tax revenues, too. Indeed, slightly more than half of the jobs lost are outside the health care sector.

Our analyses also demonstrate the close economic relations of states. The federal funding lost in Medicaid-expanding states and DC also affects the 10 states that have not expanded Medicaid. The analysis of the DC Medicaid matching rate reduction shows this even more clearly: while the reduction directly affects DC, Maryland and Virginia experience substantial losses as well.

While our analysis indicates that mandatory work requirements would cut Medicaid expenditures by $362 billion to $504 billion over a decade — more than three times higher than CBO’s 2023 estimate — and cause about three times as many to lose Medicaid coverage, this still falls short of the $880 billion targeted under the House budget. The Republican majority could propose further cuts, such as the DC matching rate proposal or other options.

According to a preliminary budget document, the Trump administration does not support extending the enhanced premium tax credits for purchasing health insurance through the Affordable Care Act’s health insurance marketplaces.²⁶ Our earlier analysis indicated this could cause 286,000 jobs to be lost in 2026.²⁷ That, along with further budget cuts to the SNAP program or additional Medicaid cuts, demonstrates the harm these federal budget cuts could inflict on state economies and employment.²⁸

How We Conducted This Study

Work Requirements

Our analysis of Medicaid work requirements builds upon state-level estimates provided by Urban Institute researchers for mandatory work required for able-bodied adults who are ages 19 to 55, have no dependents, and are eligible under the Affordable Care Act eligibility expansions.²⁹ They provided low and high estimates of the number of Medicaid adults who could lose coverage in 2026.

To compute the estimated loss in federal funds in each expansion state, we multiplied these enrollment estimates by low and high estimates of the state-level Medicaid expenditure per expansion adult. We used data about average state-level expenditures per expansion adult in 2022,³⁰ inflated to 2026 levels, consistent with Congressional Budget Office (CBO) baseline estimates.³¹ In light of uncertainty about expenditures for those who lose coverage due to work requirements, we computed low and high expenditures per adult, which were 90 percent and 110 percent of the state-level 2026 CBO-aligned estimates.

On the low side, we note that Medicaid beneficiaries might be eligible for up to three months’ coverage even if they are not working, although subsequent exclusions could last for years. Further, some individuals with higher medical needs might have a stronger incentive to remain covered. On the high side, analyses that we conducted using 2022 Medical Expenditure Panel Survey data found that nondisabled Medicaid adult beneficiaries who were unemployed were about twice as likely to be in fair or poor health as employed Medicaid beneficiaries and had 29 percent higher Medicaid expenditures. This suggests that unemployed Medicaid adults are less healthy than those who are employed. Their poorer health, even though they are not officially disabled, might partially explain why they are unemployed and have higher average medical expenditures.

In addition, a recent analysis of Medicaid beneficiaries who appeared to lose coverage because of procedural problems — as is likely to occur among many affected by work requirements — were more likely to have mental health and functional health problems and financial difficulties than those who were able to retain coverage.³² Confusion about work requirements can discourage many from even applying for Medicaid benefits, as seen in Georgia’s recent demonstration program, Pathways to Coverage.³³

We produced our estimates of the economic, employment, and tax effects of reduced federal funding with IMPLAN, a widely used input-output economic impact software system.³⁴ The underlying logic is that funding cutbacks have a “multiplier effect” (see below) that is felt initially in the health care sector but soon spreads to other economic and employment sectors as well. We used IMPLAN’s Multi-Region Input-Output (MRIO) approach, which enables us to analyze the interstate effects of the funding changes. For example, a nurse who loses her job in Arkansas due to Medicaid cuts may reside or do business in Texas, so economic effects may flow from one state to another. Similarly, prescription drugs bought for Medicaid beneficiaries in Virginia may have been shipped from or manufactured in New Jersey or North Carolina, so lower purchases in one state may result in lower sales in other states.

For these estimates, we partitioned each state’s Medicaid loss in three health care sectors: hospital, ambulatory care, and pharmaceuticals, based on estimated Medicaid spending in these sectors.³⁵ We did not include long-term care expenditures, reasoning that those receiving long-term care benefits should be exempt from work requirements because they are not able-bodied.

DC Matching Rate Reduction

Our analysis began with the estimate submitted by the District of Columbia (DC) to the Centers for Medicare and Medicaid Services (CMS) for its federal medical assistance expenditures for fiscal year 2025.³⁶ This was inflated to 2026 levels, based on the CBO baseline.³⁷ While we assumed that the basic federal matching rate for DC falls from 70 percent to 50 percent, we believe that other statutory matching rates, such as the 90 percent matching rate for the expansion group, still applies. This led to our estimate of a $712 million reduction in federal funding for DC’s Medicaid program in 2026. We partitioned this loss into four health care sectors, also including long-term care, since cuts might occur in all parts of DC’s Medicaid program.

One limitation of our analysis is that we assumed the reductions in health care spending occurred only in DC, although we recognize that some DC Medicaid expenditures are paid to health care providers in Maryland or Virginia. If we had data about such interstate expenditures, the effects for Maryland and Virginia would rise.

Like the work requirements analysis, we used reductions in health care spending in DC as inputs for our IMPLAN MRIO analysis to generate estimates of the economic and employment effects. As noted above, there could be some interaction between the work requirement and DC matching rate reduction proposal, because both affect some expansion-eligible adults in DC. Thus, the combined result of both policies would be less than the sum of the two separate analyses.

Our earlier study described the economic and employment measures used for this analysis.³⁸

How the Multiplier Effect Works

The figure below illustrates how the multiplier effect works for Medicaid. The cutback in federal Medicaid funding leads to reductions in state Medicaid programs’ budgets. In turn, the loss of insurance coverage lowers revenue to health care providers, like hospitals, clinics, pharmacies and nursing homes. These are the direct effects.

In turn, health care providers must compensate for revenue losses by reducing spending on staff and on goods and services from vendors (such as medical supplies, equipment, rent, and IT services) further down the supply chain. The supply chain businesses also must reduce spending on labor, goods, and services; the reductions in labor expenses mean health providers and other businesses must lay off staff and reduce compensation. These are the indirect impacts of policy change.

Finally, as employees lose income, they purchase fewer consumer goods and services (e.g., retail goods, transportation, groceries, rent). These are the induced losses. Falling personal and business income lowers state and local revenue from income, sales, and other taxes, such as real estate taxes.

Why We Focus on Changes in Federal Funding

We focus on the effects of changes in federal funding because these are exogenous changes (“shocks”) in the resources available to each state, its businesses, and residents, caused solely by the federal policy changes. There may be other compensatory changes in state, business, or consumer economic behaviors, but these involve shifting resources away from other uses, which also have economic consequences. Focusing on the federal budgetary changes makes our estimates more conservative.

For example, some who lose Medicaid coverage may be able to receive uncompensated health care from a community health center or safety-net hospital, but this means that those providers lose revenue and are less able to pay their staff or buy medications or medical supplies, so economic losses still occur because of the reduction in federal funding. If state governments compensate for lost federal Medicaid funding by using state-only funds, then, since states generally have balanced budget requirements, they have less to spend on education, infrastructure, or services, creating other economic losses. However, given states’ current fiscal conditions, it seems unlikely that states would use state-only funds to cover beneficiaries who might otherwise lose benefits due to work requirements. In this regard, we differ from the 2023 Congressional Budget Office estimate, which believed that about 60 percent of those losing coverage due to work requirements would be covered with state funds.³⁹

Why Our Estimates Are Conservative

Medicaid cuts could have other harmful effects on health, nutrition, and well-being. For example, numerous studies have demonstrated how the expansion of Medicaid coverage under the Affordable Care Act led to improved health access, better health, and greater financial and mental well-being.⁴⁰ The loss of health and nutrition benefits could impair health or mental well-being, leading to additional losses in productivity or higher health care costs. Our analyses do not account for these additional health and social costs; they are based entirely on the economic repercussions of federal funding reductions on state economies and employment.