The Centers for Medicare & Medicaid Services (CMS) started the year with a bang, issuing guidance on January 11, 2018, in support of Medicaid demonstration projects that condition coverage on beneficiary participation in work or community engagement activities. Just one day later, CMS approved Kentucky's proposal for such an initiative under Section 1115 of the Social Security Act (SSA). Nine other states have similar applications pending — Arizona, Arkansas, Indiana, Kansas, Maine, New Hampshire, North Carolina, Utah, and Wisconsin — and several others are expected to submit proposals in the near future.

The Trump administration's endorsement of work requirements is a policy shift that stands in contrast to the prior administration's repeated rejection of such requirements.1 It is perhaps the clearest example from CMS of the "new era for the federal and state Medicaid partnership" that agency officials promised in a March 2017 letter to state governors.

Why Waivers

To qualify for the federal share of Medicaid financing, states must design and administer Medicaid programs to satisfy certain federal standards, many of which are centered around eligibility and core benefits. For example, states must make Medicaid coverage available to certain "categorically needy" populations.2 However, Section 1115(a) of the SSA allows the Department of Health and Human Services (HHS) Secretary to grant waivers to some of these federal requirements for experimental, pilot, or demonstration projects that are "likely to assist in promoting the objectives" of the Medicaid program.3 The waivers allow states flexibility to experiment with different policies to meet the needs of specific populations and seek improved outcomes and efficiencies.

What's in the Guidance

The guidance gives states the green light, subject to CMS approval of a waiver application, to impose work-related requirements on working-age, non-pregnant adult Medicaid beneficiaries that qualify for Medicaid on a basis other than a disability. The conditions may be tied to Medicaid coverage, additional or enhanced benefits, or reductions in premiums or cost-sharing obligations.

CMS encourages states to consider a variety of activities that could satisfy work-related requirements, including community service, caregiving, education, job training, and substance use disorder treatment. Acknowledging the opioid addiction epidemic, CMS will require states to "take certain steps" to ensure that eligible individuals with substance use disorders have access to appropriate Medicaid coverage and treatment services. States are required to create exemptions for "medically frail" individuals and those with acute medical conditions validated by a medical professional that would prevent compliance with work requirements.

CMS identifies several issues for states to consider in designing demonstration projects testing work-requirement initiatives:

  • Alignment with other programs: States are advised to explore alignment with existing welfare programs, such as the Temporary Assistance for Needy Families (TANF) program and the Supplemental Nutrition Assistance Program (SNAP). Alignment may help to streamline eligibility and reduce administrative burdens.
  • Populations subject to work promotion/community engagement requirements: In identifying eligibility groups subject to work-related requirements, states must comply with federal civil rights laws, allow for necessary exemptions, and ensure that reasonable modifications are available. Modifications may include exemptions from participation, reduced hourly requirements, or provision of support services. Federal matching funds are not available for support services.
  • Range of community engagement activities: The work-related activities should "reflect each person's employability and potential contributions to the labor market."
  • Beneficiary supports: Although states must identify strategies to help individuals satisfy work-related requirements, including connections to child care assistance and transportation, states are not permitted to use federal matching funds for these services.
  • Attention to market forces and structural barriers: States should consider local employment markets and regional barriers to compliance.

States seeking more detailed instruction might closely examine the approved Kentucky application, as CMS Administrator Seema Verma worked as a consultant on the proposal prior to taking on her current role. Verma recused herself from CMS decisions about the Kentucky, Indiana, and Iowa waiver applications based on her past involvement developing the proposals.

Effects of Work Requirements

Ultimately, work requirements are intended to aid in transitioning Medicaid beneficiaries to other forms of health coverage, whether employer-sponsored or through the commercial marketplace for individual plans. Kentucky officials, for example, have estimated that over 90,000 fewer people will be enrolled in its Medicaid program at the end of the five-year waiver period.4 CMS contemplates such reductions in Medicaid enrollment in its guidance, making clear that states are not permitted to accrue savings from a reduction in enrollment that may occur as a result of a waiver.

Reducing reliance on Medicaid by increasing self-sufficiency aligns with the rhetoric of the Trump administration. In November 2017, Verma articulated her belief that the "fundamental flaw" of the Affordable Care Act "was putting able-bodied adults into a program that was designed for disabled people," referencing the Medicaid expansion. But effects of conditioning Medicaid coverage on work or community engagement activities are complex. It is unclear how many people will actually transition off of Medicaid as a result of work requirements, as the majority of working-age Medicaid beneficiaries already are working, and many of those who are not working have physical or mental conditions that limit their ability to work.5 Further, many employed individuals still qualify for Medicaid coverage based on low income levels. Some studies indicate that work requirements result in few long-term employment gains and may actually push individuals deeper into poverty.6

Legal Challenges

There are bound to be legal challenges to this dramatic shift in Medicaid policy, either to the guidance document itself or to an approved waiver proposal. Less than a year ago, the Congressional Research Service published a report on the legality of such requirements under Section 1115 waivers.7 The analysis does not reach a clear conclusion, noting that legality may depend on the details of a specific proposal. Central to legal arguments likely will be whether work-related requirements are "likely to assist in promoting the objectives" of the Medicaid program, as required by Section 1115 of the SSA. In denying an Arizona proposal to impose a work requirement, the Obama administration explained that such a requirement "could undermine access to care and do[es] not support the objectives of the program."

The current administration's endorsement of work requirements does not skirt around the potential hurdle of promoting the objectives of the Medicaid program. Rather, CMS pointedly states in its approval of the Kentucky proposal that "the evidence tying certain beneficiary behavior to improved health outcomes supports the rationale that these requirements promote the objectives of the Medicaid program." The Kentucky application also directly addressed the issue, explaining "the investment in developing the workforce in the Commonwealth is important not only to reduce unemployment, but also to improve health outcomes . . . there is a known link between health and employment . . . ."

The fundamental aim of Medicaid often is described as providing health coverage to low-income and medically needy people. Title XIX of the SSA does not clearly set forth employment as a goal. This contrasts with the TANF statute, which provides for block grants to states for programs designed to promote job preparation and work, among other goals.8 SNAP rules also condition assistance on satisfaction of work requirements. Could the objectives of Medicaid be read to extend to employment? Notably, the federal appropriations clause for Medicaid sets forth two goals of the state programs: "to furnish (1) medical assistance on behalf of families with dependent children and of aged, blind, or disabled individuals, whose income and resources are insufficient to meet the costs of necessary medical services, and (2) rehabilitation and other services to help such families and individuals attain or retain capability for independence or self-care."9

Administrative Burden

It will take time to assess the long-term effects of conditioning Medicaid eligibility on employment or community engagement. At least one effect is certain, however: increased administrative burdens. Implementing work requirements in other contexts has proven difficult; people inevitably slip through the cracks.10 Individuals face new paperwork, including verification of employment or documentation of an exception, and challenges navigating the nuances of new program rules. Governments must design and implement oversight mechanisms to ensure that individuals are not inappropriately denied Medicaid coverage.

Before it issues decisions on pending waiver applications submitted by states seeking to impose work requirements, CMS itself might be bracing for more paperwork. Although the public comment periods have closed for many of the pending applications, some groups are calling on CMS to re-open or extend the comment periods in light of the new guidance.11