Why Medicaid work requirements could help persuade more states to expand coverage

Millions of adult Americans who are under 65, not disabled, and have incomes near the poverty line do not have access to health insurance. Nevertheless, 19 states (Pennsylvania excluded, but Maine so far included) have not yet decided to participate in Obamacare’s Medicaid expansion, despite the incentive of large federal matching payments.  Those who remain uninsured in these states make up much of the remaining 10 percent to 15 percent of the population without coverage.

Consequences of being uninsured, like financial distress and lower rates of using medical care, have been documented for them.  What, many of us in states that have implemented the expansion ask, is holding up the parade?

Recent proposals for redesigning this part of Medicaid have identified this pervasive issue: work and policymakers’ attitudes toward it.   Most Americans under age 65 at all income levels receive health insurance through their employment and are induced (through tax breaks and employer regulations) to take it as part of their compensation.  Several states, including some that reluctantly implemented expansion and some contemplating it, have asked for federal permission to link Medicaid eligibility to labor force participation—working or looking for work.

As with everything in health policy these days, this idea is controversial, with disagreement even about the facts but more fundamentally about subjective social values.  The factual questions are 1. how many people on Medicaid would be affected by this policy and 2. how many people who receive Medicaid would be able to work (or go to school) if they are not already, and how many would just choose not to?

The value question deals with the latter group—if some of them could find employment, but choose not to, would you as a taxpayer be willing to sacrifice some of your wages to pay for their health insurance?  There can be no doubt that some politicians and the citizens who support them say no, while others say yes.  There is no generally accepted principle that can tell analysts that one value system is better than the other.

So what could be the compromise?  The leading proposals would not require states that are already deeply committed to Medicaid expansion to implement work requirements; it is only an option for those that are on the fence.  While I personally would err on the side of being permissive in offering subsidies were I able to persuade my fellow citizens in other states to do so, I think there is merit in meeting those others where they are (rather than where I think they should be) and seriously considering the possibility of work requirements as a way to persuade them to expand Medicaid to cover the great bulk of non-disabled poor working adults.  And I think there are ways to do this that would make getting and holding a job easier—so that we achieve the dual goals of covering the formerly uninsured and increasing participation in compensated work.

First, the data.  The evidence strongly suggests that the problem of complying with a work rule will affect only a minority of those who are covered by the Medicaid expansion because the great majority of them currently do work.  The Kaiser Family Foundation estimates that nationwide 93% (though less in some states) of this population is either working, functioning as a caregiver, or going to school—all categories that make people eligible to continue to receive benefits.

While for this population, the work requirements could create a burden in the need to provide evidence of their status, it shouldn’t be necessary for them to have to do so.  Deeming someone as working based on their assertion, and then checking later with the easily available evidence from payment of federal wage taxes would be an effective and low cost method of validation. If the fraction of the potential low income population who would be required to work  and so work is large, there would be little cost (though little benefit too) from requiring eligibility to be demonstrated.

But if that demonstration could convince skeptics to support expansion of Medicaid in the 19 lagging states and retain it in those that are wavering, it would be a reasonable political deal.

Not only that, but the focus on work as part of Medicaid might be used to re-orient the design of such programs to target the medical problems that keep people from working: depression, substance abuse, and musculoskeletal problems.  Those who worry about Medicaid beneficiaries working should support generous provider payments for those services that help people keep working and not be satisfied with the stingy Medicaid payment rates that can make care hard to find.

But what about the small minority left over who are not working—those looking for work unsuccessfully, and those who prefer not to work, or whose disability or work status is uncertain?  The last group can be dealt with fairly with little red tape if there is a political will to do so.   For the first group, common sense administration would take account of local job shortages in particular occupations as part of judging what reasonable job seeking efforts are.

For the middle group, the subjective value judgements of different taxpayers in different states will have to come into play.  The work ethic concept deservedly seems old fashioned, but the idea of encouraging work that gives meaning to adults’ lives is not.  The kinds of changes in education and local economies that can offer jobs that pay well enough to avoid Medicaid in the first place provide the ultimate solution.

But in the meantime the benefit from getting reluctant states to commit to subsidizing health insurance for almost all working age adults may be a sufficient good to avoid making perfection a barrier to any improvement at all.

Mark V. Pauly, PhD, is Bendheim Professor in the Department of Health Care Management, Professor of Health Care Management, and Professor of Business Economics and Public Policy at The Wharton School, and Professor of Economics in the School of Arts and Sciences at the University of Pennsylvania.  He is also a member of the Inquirer’s Health Advisory Panel.

This post was cross-published on the Health Policy$ense blog of the Leonard Davis Institute of Health Economics of the University of Pennsylvania.