The Unintended Consequences Of Medicaid Work Requirements

The Trump administration recently unveiled a rule implementing the Medicaid work requirements included in last year’s budget reconciliation law. The rule strikes a reasonable balance designed to encourage participation in labor markets while not being unduly burdensome to states or beneficiaries.

The welfare industrial complex has protested that the requirements will lead individuals to lose insurance coverage. But an examination of the law’s intricacies shows that beneficiaries in many jurisdictions can comply by working what averages out to just over an hour per week. Moreover, in one of its unintended consequences, work requirements may end up encouraging increases in state and/or federal minimum wage, which generally reduce employment and jobs rather than increasing them.

Some observers might believe that talk of a requirement for Medicaid beneficiaries to conduct “community engagement” for 80 hours per month means that beneficiaries will have to participate in those activities every month. It doesn’t, and they won’t. Section 71119 of the reconciliation measure requires states to confirm community engagement “for one or more but not more than 3 consecutive months” at renewal.

According to a spring survey conducted by KFF, formerly the Kaiser Family Foundation, 34 of the 41 states that expanded Medicaid under Obamacare (the population to whom the work requirement applies) will confirm community engagement for a one-month period. Likewise, 34 states will document compliance with work requirements only at renewal, which under the law will occur every six months for the Medicaid expansion population. Thus, in most states, beneficiaries subject to work requirements will have to document compliance for two months out of the year.

The law also includes alternative ways to comply with the engagement requirement. Specifically, a beneficiary can show monthly income — which under the rule also includes unearned income — greater than or equal to 80 times the minimum wage, or $580. While many states have increased their minimum wages in recent years, the law linked the income test to the federal minimum wage, which has remained at $7.25 per hour since 2009.

A total of 17 states, plus the District of Columbia, have minimum wages of at least $15 per hour in 2026. In these states, all of which have expanded Medicaid under Obamacare, beneficiaries can meet the income test for compliance with community engagement by working not 80 hours per month, but 39 (i.e., $580 divided by $15 per hour). And because all these states save Arizona will check compliance with the requirement twice per year, beneficiaries will have to work 39 hours in two separate months, or a total of 78 hours annually, to meet the work requirement — an average of less than an hour and a half per week.

Activists on the left may claim that Medicaid beneficiaries will not game the system in such a manner, but recent experience suggests that workers respond rationally to government incentives and disincentives. When overly generous pandemic unemployment benefits discouraged Americans from working, the labor market suffered — only for unemployment to decline when the enhanced benefits lapsed. 

While conservatives generally support Medicaid work requirements as a way for able-bodied adults to build skills and demonstrate independence, these results show unintended consequences of an income test linked to the federal minimum wage. The income test provides a further incentive for blue states to raise their minimum wage, which will lessen the impact of work requirements they generally oppose. Conversely, conservatives otherwise disinclined to support a minimum wage increase should worry that wage inflation will further erode the income test and therefore the work requirement.

Democrats seeking to leverage health care to regain control of Congress will doubtless continue to attack the community engagement provision as cruel and inhumane. But a work requirement that, as applied in roughly a third of states, means that able-bodied Medicaid beneficiaries will have to work fewer than 80 hours per year scarcely amounts to a requirement at all.