New Medicaid work rules to save money, but states first must spend to figure out path forward

Terry Gerton I want to ask you first to refresh our memory. There are new Medicaid work requirements that are going into effect next January. Where did they come from? Why are they happening?

David Lieb So remember that One Big, Beautiful Bill, also more formally called HR1, that was passed last summer and signed into law by the president on the 4th of July? That bill had a lot of tax cuts in it, but it also had some pretty significant changes to federal programs, particularly, in this case, Medicaid. The goal was to save money in Medicaid to help offset some of the costs of the tax cuts. And two of the biggest changes in Medicaid take effect on January 1st, and one of those is a requirement that certain adults meet work requirements to continue receiving benefits, and another requirement is that certain adults have to have their eligibility reviewed every six months instead of once a year. Both of those take effect January 1, and they will require some work for states to implement them.

Terry Gerton So the headlines sound kind of innocuous and everybody could kind of nod their heads, but your reporting talks a great deal about the huge technology lift that states are facing to implement those rules. Tell us more about what you found.

David Lieb To start with, there is not a single common platform that every states use for handling Medicaid enrollment and eligibility verification. So that means that when a change has to be made to it, you have 50 different states doing 50 different things to try to comply with a new federal law. In a lot of cases, these systems that states use to manage their Medicaid are decades old. I mean, not just 40 years old in some cases. So finding someone to make the updates necessary is not as simple as just refreshing a new update on your smartphone, right? Which happens all the time overnight. My smartphone’s updating, oh great. Well, it doesn’t work that way when it comes to these state computer systems. Many have to go hire experts to come in and write the changes necessary to be able to manage the new requirements in the system.

Terry Gerton Well the federal government is providing some money to support those changes, but probably not enough. Your estimate is $1 billion worth of IT costs here?

David Lieb That’s right. The federal government is providing $200 million to help states implement these work requirements and eligibility requirements. But we surveyed all the states and have responses from at least 25 states, a little more than that. And those alone have costs of over $1 billion. So yeah, it’s going to be north of $1 billion to make this change. Now that’s a billion-dollar of cost to both federal and state funds.

Terry Gerton The data required to validate these new work requirements is not even universally collected or accessible, is it?

David Lieb That’s another good point. So the work requirement says that you have to work 80 hours a month or volunteer for 80 hours a month, or be enrolled at least part time, half time, they say, as a student, or learning a skill. Well, states might be able to verify if you’re working from other sources, employment sources. But right now, that is not a question that is asked Medicaid enrollees, because it’s not relevant. They ask them about income, but they don’t actually ask them how many hours they’re working. So you’re going to have to reprogram their systems to make this one of the criteria you check. It gets even more complicated when you think about the topic of volunteering, because states might go to third-party databases to verify employment. And they might be able to tap into higher education institutions’ enrollment data to verify whether someone’s enrolled in school, but there’s no database of volunteers. It’s not like you can just tap into some list that’s already set up and verify that you volunteered to serve food at the Salvation Army. That’s not out there. So they have to come up with ways to verify stuff like that.

Terry Gerton So not only are all 50 states on some different form of Medicare, Medicaid payment system itself, but all those other feeder systems are different. How can they possibly begin to integrate all of that into a reasonably reliable system?

David Lieb Well, they need to start now, in many cases. You need to probably solicit bids for your contractor to help you with this, and that’s going to take months to do. And the timeline is actually even shorter than it sounds, because while the work requirements have to kick in January 1st, you have to provide notice of people three months in advance that this is going to happen. So you have to have either just send everyone who’s potentially affected a notice, or you have to have your system up and running to identify the people who actually would be affected to send them a notice. It’s a big lift for states and they’re under a time pressure and there’s consequences because another part of the federal law, another change from this law is that states are going to face penalties for their air rates starting several years out, but being judged in this coming year on how they’re doing.

Terry Gerton I’m speaking with David Lieb. He’s a correspondent with the Associated Press covering trends in state government. David, you mentioned up front that the administration is anticipating savings from implementing these rules. Fewer people enrolled in Medicaid, fewer people receiving payments. What are the biggest implications you see as implementation rolls out? Will fewer people have coverage?

David Lieb Well, that’s the expectation. And that could occur through one of several different ways. It could occur because they actually get a job or have a job, and they’re working, and so they’re just not eligible. That would be the ideal way, you might say, to save money, because it means people are earning money, and perhaps they have coverage that they’re getting through an employer. But people also, it is expected, would drop off their rolls just because of the new paperwork requirement. This is another thing you have to do and prove that you’re doing to remain on the rolls. And the more requirements that you put in place for people, the more hoops they have to jump through, so to speak, the more common it is that some people just don’t do that. Maybe even if they are working, they just don’t go through all the steps necessary, and that’s an expectation that they will end up getting dropped.

Terry Gerton You talked about the potential penalties that states might face. Do states have an option just not to do this? I mean, we saw in the news recently that Governor Newsom in California has said that California will take up these work-related requirements across the Medi-Cal program.

David Lieb States don’t have an option not to do it, but it does not technically apply to all states. So these work requirements apply to the segment of Medicaid recipients who are in the expansion population, those people who are receiving Medicaid under President Obama’s 2010 healthcare overhaul. So these are people that earn a little bit more than what would be the normal cutoff for Medicaid, up to about 133% of poverty. Not every state expanded Medicaid to cover that group of people, but most states did. We’re talking four-fifths of the states are going to be covered by this. There’s a few states that are not.

Terry Gerton Have you seen trends or best practices in other sorts of programs where the federal government provides these sort of payments to states that states administer that might offer a pathway ahead?

David Lieb Well, one thing the states are looking at is how can you take Medicaid out of a silo and sort of merge some of these processes with other programs like SNAP, the food benefits program. They both will have work requirements, for example. They both have income levels, although different. And so if you’re, as a state, able to set up one sort of portal where people apply for benefits in general, be it SNAP, Medicaid, perhaps TANF, one entryway — that in the long run could have some savings. And many states are transitioning toward that. But in the meantime, they probably have to also develop their Medicaid silo requirements, their SNAP silo requirements and try to be building toward a new common platform that brings it all into one place.