Proposed Medicaid eligibility restrictions have costly unintended consequences

This is a guest blog by Aviva Aron-Dine, Vice President for Health Policy, the Center on Budget and Policy Priorities

Proposals to take Medicaid coverage away from people who don’t work or engage in work activities for a set number of hours each month will lead to large coverage losses, worse access to care, and less financial security, previous CBPP analyses showed. And they’re unlikely to advance their goal of increasing employment; in fact, they’ll likely make it harder for some people to work. Two new CBPP analyses (see here and here) show that, on top of these problems, these state proposals for waivers from federal Medicaid rules (some of which the Trump Administration has already approved) will have other, likely unintended, harmful consequences.

Many of those losing coverage will either be eligible people who lose Medicaid due to red tape or workers with unstable jobs who experience gaps in employment or can’t find enough hours of work every month.

• Some eligible people will lose coverage due to complexity and state errors. The new Medicaid eligibility restrictions are extraordinarily complex for both states and enrollees, a new CBPP analysis explains. States will face an array of challenges to administer the new requirements correctly, such as tracking each enrollee’s compliance each month. And all enrollees, including those who are meeting the requirements, will have to jump through new hoops to stay covered. People who are working or engaged in work activities for a sufficient number of hours each month will have to understand which activities count toward the requirement, how many hours they must complete, and how to document their hours in these activities in accordance with state specifications. Enrollees who should qualify for exemptions will need to understand the exemption criteria, obtain and submit the needed documentation, and renew their exemptions periodically.

Experience with eligibility restrictions in Medicaid and work requirements in other federal programs shows that many eligible people will lose coverage. Certain vulnerable groups are particularly ill-equipped to cope with added red tape, which is why studies have found that people with physical disabilities, mental health needs, and substance use disorders are disproportionately likely to lose benefits, even though many should qualify for exemptions.

State errors will also cause some eligible people to lose coverage. Notably, two states with newly approved waivers, Kentucky and Arkansas, have struggled to implement other recent policy and system changes, causing tens of thousands of enrollees to lose coverage.

• Working people will lose coverage because they can’t meet the work requirement every month. Most Medicaid enrollees work, but in unstable jobs in which hours fluctuate from month to month and in which an illness, family emergency, or disruption in child care or transportation can lead to job loss. As a result, nearly half (46 percent) of working low-income people who could be subject to Medicaid work requirements would face the risk of losing coverage under an 80-hour per-month standard, an earlier CBPP analysis found. Even among people working at least 1,000 hours per year (people meeting an 80-hour-per-month requirement on average), 1 in 4 would fall short at least one month during the year.

About 60 percent of Medicaid enrollees who could be subject to work requirements under Trump Administration guidance work at some point during the year, 15 percent report they couldn’t work due to illness or disability, and another 18 percent are caregivers or in school, the Kaiser Family Foundation estimates. With large shares of workers and people with serious health needs at risk of losing coverage, the majority of enrollees at risk likely fall into one of these groups.

These proposals will also have large costs for states, the federal government, and health care providers.

• Implementing complex new eligibility restrictions will cost tens or hundreds of millions of dollars per state. States and the federal government will pay millions of dollars to information technology (IT) vendors and other contractors to change notices and forms to capture more information and reprogram eligibility systems to add and track new requirements. And states will have to hire staff to administer the new rules and monitor compliance.

As estimates from nine states implementing or considering such proposals show, projected costs are typically in the tens of millions of dollars per year, with even higher start-up costs for some states. Kentucky plans to spend $186 million in fiscal year 2018 and another $187 million in 2019 to implement its waiver. And a work requirement considered by Pennsylvania’s legislature would have cost $600 million and require 300 additional staff to administer, according to a state official. Effectively, these proposals divert some state and federal dollars from providing health care to creating new bureaucracy.

• Coverage losses from eligibility restrictions will increase uncompensated care costs. As our other new analysis explains, work requirements and other barriers to coverage in Medicaid threaten to reverse the large drop in uncompensated care costs achieved as the Affordable Care Act (ACA) Medicaid expansion and other major coverage provisions took effect. Those costs fell by 30 percent nationwide as a share of hospital operating budgets between 2013 and 2015, with the largest drops in states experiencing the largest coverage gains: costs fell by an average of 47 percent in Medicaid expansion states. Reduced uncompensated care costs have benefited low-income families, who’ve seen large reductions in medical debt and, as a result, better access to credit. They’ve also benefited hospitals — especially rural hospitals — and other providers, as well as state budgets. Because new eligibility restrictions are projected to reverse a meaningful share of the coverage gains under the ACA’s Medicaid expansion, they will likely reverse a significant share of uncompensated care savings as well.

— Aviva Aron-Dine