Internet Explorer 11 is not supported

For optimal browsing, we recommend Chrome, Firefox or Safari browsers.

Implementing States' Medicaid Wishes Won't Be Cheap

As the Trump administration lets states experiment with work requirements and other eligibility rules, the costs are adding up. Some policy experts worry they are "shifting spending from health care for needy families to administrative bureaucracy."

Health Overhaul-Conn
An eligibility associate helps a man apply for Medicaid.
(AP/Jessica Hill)
After years of having most of their health care requests denied by the Obama administration, conservative states seeking to add eligibility requirements to Medicaid have received a blessing.

Last month, the Trump administration opened the door for states to, among other things, make employment a condition for Medicaid, the insurance program for the poor. It has already approved Kentucky and Indiana’s waivers, and at least eight other states have asked the federal government for permission to make similar changes. Several more are likely to follow suit.

Much of the debate concerns the impact these requirements will have on the poor. Supporters of strict eligibility requirements believe government assistance programs should encourage people to work and escape poverty. Critics, meanwhile, focus on the people who will lose health insurance in the process and believe health care is key to getting and keeping jobs.

But ideological differences aside, health policy experts warn that changing decades-old rules and systems won't be cheap. 

"Our concern isn’t whether it’s good or bad. But we want them to know there are costs involved," says Jeff Myers, president and CEO of Medicaid Health Plans of America, a trade group. "Our customer is the state. If this is what states want to do, then we need to make it valuable for them."


Two Big Costs

There are two big costs that come with implementing these kinds of changes, according to experts. There's the IT side: updating systems that house beneficiary data, in some cases creating entirely new ones. And then there's the personnel side: hiring more staff to track compliance and appeals, and training existing staff on the new requirements. 

Medicaid, however, isn't the first government program to add work requirements. In the 1990s, federal law called for the condition to be added to welfare (formally called Temporary Assistance for Needy Families, TANF).

When Tennessee implemented TANF work requirements, the state spent more than $70 million, according to the Sycamore Institute, a nonpartisan policy institute. In New York City, the cost of just implementing job training programs for welfare recipents was about $17 million.

In most cases, states can get the feds to pick up part of the tab. States can receive a federal match for new administrative costs. Most of the time it's 50 percent, but Matt Salo, executive director of the National Association of Medicaid Directors, says states can sometimes get up to a 90 percent match for IT systems development. 

But the federal government said in a letter to state Medicaid directors last month that it would not help pay for “job training or other employment services, child care assistance, transportation, or other work supports to help beneficiaries prepare for work or increase their earnings.”

States will be on the hook for big sums at a time when many state budgets are strapped. According to the Center for Budget and Policy Priorities (CBPP), 32 states operated with a budget shortfall in fiscal year 2017 or 2018. 

"I don’t know if states realize how fundamentally they’ll have to change their eligibility systems," says Jennifer Wagner, a CBPP senior policy analyst. She estimates that states could be looking at "tens of millions of dollars to the eligibility system alone."

Case in point: Virginia Gov. Ralph Northam released data last week showing the state would be on the hook for $100 million for the first two years if it adds a work requirement to Medicaid. (Northam, a Democrat, wants to expand Medicaid, but his GOP-controlled legislature has signaled it would only consider that if work requirements are attached.)

In Kentucky, the state has reportedly budgeted about $170 million to implement its waiver -- almost 90 percent of which would be reimbursed by the federal government.

Similarly, in Wisconsin, GOP Gov. Scott Walker is proposing new eligibility requirements for food stamps. His office estimates the changes would cost the state roughly $38 million a year in operating expenses and $22 million for implementation costs, such as computer upgrades. 


'Shifting Spending From Health Care ... to Administrative Bureaucracy'

States aren't just adding work requirements. Some are going to start kicking people off their insurance plan for months at a time if they fail to report a change in income, pay premiums or submit paperwork that proves they’re still eligible.

Creating a system that will track employment, premium payments and other metrics will all be significant modifications. Four states are also proposing a time limit for how long people can receive Medicaid. CBPP's Wagner says she’s seen firsthand how complicated that can be to track.

When time limits were placed on certain food stamp recipients, she was working as a caseworker in North Carolina. The administrative burden was too much for their system to track, so they resorted to marking each month by hand in that client’s folder.

To account for the added costs, Myers, of Medicaid Health Plans of America, says it’s reasonable to expect that some states may trim other areas of their budget -- health or otherwise.

Some states, however, are already being cost-conscious. 

In an email to Governing, Arkansas Gov. Asa Hutchinson writes: “We have carefully evaluated how the implementation of the work requirement would impact our budget, and we have found an efficient way to administer the program through our existing online application site. ... We do not anticipate adding staff to implement the program.”

And before Kentucky's waiver was approved, the state amended it from a phased-in work requirement to a flat 20 hours per week, citing administrative burdens.

Kentucky also expects to drop close to 100,000 people from its Medicaid rolls if and when the new eligibility rules go into effect. (A lawsuit is currently pending.) That might save the state money, but Gov. Matt Bevin said in a January press conference that because the federal government won't reimburse states for job training expenses, "increases in job training efforts might offset any savings from fewer Medicaid beneficiaries." 

"Our serious concern here is that they are shifting spending from health care for needy families to administrative bureaucracy and contracts with private vendors, and leaving families without access to health care," says Wagner.

Experts expect some states to outsource these system updates, but how the states communicate what they want and what the vendors will actually be able to do might be two separate things.

“There’s a lot of space between [the state’s wishes] and reality,” says Myers. 

Then there’s the issue of manpower. Staff will need to be retrained to learn the ins and outs of the new requirements, and more people may need to be hired to keep up with increased compliance efforts. Some experts say this runs counter to how Medicaid has been run.

“Medicaid is a different beast than SNAP [otherwise known as food stamps] or TANF. SNAP and TANF rely more on interviews and one-on-ones with caseworkers. Medicaid is more streamlined. You can often sign up for eligibility online,” says Wagner.

Myers doesn't dispute that getting more Medicaid recipients in the workforce is a good thing. But he's concerned that state officials aren't thinking about all the costs involved to make it happen.

“We just try to say 'sounds great, we can help you, but these are things we hope you’re thinking about.'"

This is part of the Health newsletter. Subscribe for free.

Mattie covers all things health for Governing.

From Our Partners