Taking a Closer Look at the CBO Estimates of Speaker McCarthy’s Damaging Medicaid Work Reporting Requirement

On April 26, 2023, on a party-line vote, the House passed Speaker McCarthy’s debt ceiling bill (H.R. 2811).  The bill would institute trillions of dollars in draconian spending cuts as the price for raising the debt ceiling for less than one year and avoiding catastrophic default on the nation’s debt.

As we have written, the bill includes a mandatory Medicaid work reporting requirement for all states that would apply to the entire Medicaid population.  While the bill makes available exemptions for certain groups, there is actually no requirement that states automatically exclude such groups or have systems in place to facilitate automatic exemptions.  The bill would bar federal Medicaid funding for coverage of anyone who fails to meet the work reporting requirement.  As a result, the requirement would substantially cut federal Medicaid funding and threaten health coverage and access to needed health care services for millions of low-income beneficiaries, not because low-income people are not working but because they are unable to overcome a whole new set of bureaucratic hurdles and red-tape.

As part of its overall cost estimate of the McCarthy bill, the Congressional Budget Office (CBO) has estimated the impact of the Medicaid work reporting requirement (here and here).  CBO finds the provision would cut federal Medicaid spending by nearly $109 billion over ten years.  Here are some additional details from the CBO estimates, with analysis and commentary on my part:

Employment.  Supporters of Medicaid work reporting requirements argue that they will spur greater employment among low-income Medicaid beneficiaries, even though the Kaiser Family Foundation finds that 91 percent of non-elderly adults enrolled in Medicaid, who are not eligible on the basis of disability, already work or are caregivers, students, or unable to work due to illness.  Speaker McCarthy even absurdly claims that lack of such requirements contributed to the ongoing worker shortage.  But CBO expects that the bill “would have a negligible effect on employment status or hours worked by people who would be subject to the work requirements.”  CBO cites research published in the New England Journal of Medicine which examined Arkansas’ brief experience with a Medicaid work reporting requirement before it was halted by the federal courts.  As we have noted, that study found there was no increase in employment in Arkansas, with employment rates actually declining, and access to employer sponsored coverage also did not increase.

Scope.  CBO assumes that “about 15 million people could be subject to the Medicaid community engagement requirement each year, although many of those people would qualify for an exemption.”  This could be a substantial underestimate of those who will be ultimately subject to the Medicaid work reporting requirement.  For example, the CBO estimates do not count people on SSI or parents enrolled in the Medicaid expansion or under section 1931 as being subject to the work reporting requirement, even though the bill applies to those groups and does not provide an explicit exemption to those enrolled in SSI who are categorically eligible for Medicaid.  (The bill does provide an exemption for parents of dependent children but as noted, there is nothing requiring states to automatically exempt certain groups).  In addition, CBO itself assumed just last year that imposing an Arkansas-like Medicaid work reporting requirement nationwide would apply to 30 million adults without dependent children.  Notably, the Arkansas requirement included more exemptions than under the McCarthy bill.  For example, Arkansas also included exemptions for people on SSI, the medically frail, those receiving unemployment benefits and those receiving postpartum coverage.  Moreover, CBO’s estimate last year involved a work reporting requirement that applied only to those up to age 49 as was the case in Arkansas; the McCarthy bill applies the work reporting requirement up to age 55.  The U.S. Department of Health and Human Services estimates that the McCarthy work reporting requirement would apply to 21 million people but that estimate only includes the impact on beneficiaries in expansion states and also excluded people on SSI and parents under section 1931, among others.

Coverage. Under the bill, federal Medicaid funding would be cut off for anyone who fails to meet the work reporting requirement.  CBO estimates that “[o]nce all states established requirements, about 1.5 million adults, on average, would lose federal funding for their Medicaid coverage.”  Of those losing their Medicaid coverage, CBO expects 600,000 low-income people to become uninsured.

This could be a substantial underestimate of the coverage losses that would result under the McCarthy work reporting requirement bill.  CBO assumes that some states will pick up all of the cost of maintaining health coverage for the remaining 900,000 people whose coverage will no longer be eligible for federal Medicaid matching funds.  (CBO does not specify the generosity of the coverage that may be provided, as such coverage would no longer have to comply with federal Medicaid requirements.)  This would constitute a cost-shift to states of $65 billion over ten years, according to CBO.  But while it is possible that some states might finance some coverage using their own funds for a brief period of time, it is difficult to see how states could absorb this cost over the intermediate- and long-run.  For example, before the Affordable Care Act, states could always use their own funds to cover individuals not otherwise eligible for Medicaid, such as non-disabled adults without dependent children who are now eligible under the Medicaid expansion, but  did not.  The handful of states that did cover low-income non-disabled childless adults did so through Medicaid waivers, at the regular Medicaid matching rate.  Now, states taking up the Medicaid expansion are receiving a federal matching rate of 90 percent.  For those who fail to meet work reporting requirements and who are no longer eligible for federal Medicaid matching funds, states would have to raise taxes or cut other parts of their budget like education in order to pick up 100 percent of the cost of their coverage (instead of their current share of 10 percent for expansion enrollees and 43 percent, on average, for non-expansion enrollees.)  In addition, more states are facing slower revenue growth and the debt ceiling bill also cuts discretionary funding for states, territories, localities and tribal nations by as much as $1.3 trillion over the next ten years.

Also, while we only have the example of Arkansas’ brief experience with its Medicaid work reporting requirement, it shows that in just a few short months, 18,000 Medicaid beneficiaries in Arkansas lost coverage, equaling about 23 percent of the age group subject to the work reporting requirement.  Moreover, 97 percent of those in the group affected by the new rules in Arkansas should have been exempted or deemed compliant so most of those losing coverage should have remained enrolled.  In addition, Medicaid beneficiaries in Arkansas were confused about what the requirement was and whether it was in place or not, let alone whether they qualified for an exemption and how to get one.  The CBO estimates effectively assume about 10 percent of those it expects to be subject to the work reporting requirement would lose their federally funded Medicaid coverage and be at risk of becoming uninsured.  The experience in Arkansas, however, indicates that the share of those subject to the requirement whose coverage would no longer qualify for federal Medicaid funding could be significantly higher, which would thereby increase the number of people losing their health coverage, becoming uninsured and going without needed care.

Overall impact.  The CBO estimates clearly show the highly damaging effects of the Medicaid work reporting requirement.  Federal Medicaid spending would be cut by nearly $109 billion over ten years, 1.5 million Medicaid beneficiaries would no longer be eligible for Medicaid coverage and the number of uninsured would rise by 600,000 people.  In summarizing these estimates, CBO succinctly states that “federal costs would decrease, the number of people without health insurance would increase, the employment status of and hours worked by Medicaid recipients would be unchanged, and state costs would increase.”  But, as noted above, even these CBO estimates likely seriously understate the dire impact of the McCarthy debt ceiling bill’s Medicaid work reporting requirement, were it to be enacted into law.

Edwin Park is a Research Professor at the Georgetown University McCourt School of Public Policy’s Center for Children and Families.