How Medicaid Work Requirements Undermine Hospitals

A move in more than a dozen states to impose work requirements as a condition of Medicaid coverage could not only result in people losing health insurance, but could also impact hospitals’ revenue, increase uncompensated care costs and have a detrimental economic effect on local communities, according to a new Commonwealth Fund report. Rural hospitals could be especially hard hit, the report noted.

Researchers examined the potential impact on hospital finances in states that have approved or pending waiver applications for implementing work requirements in their Medicaid programs. Under such waivers, Medicaid beneficiaries lose health insurance coverage if they cannot find work, are unable to document the required number of hours of work activity or cannot document an exemption. The analysis is based on early results of Medicaid coverage loss from Arkansas’s implementation of work requirements as well as other recent studies.

Some key findings from the report:

Medicaid work requirements could contribute to a loss in revenue for hospitals across all states that implement the requirements, totaling between $3.7 billion and $4.1 billion in 2019 alone. The impacts vary across states, depending upon how the work requirement programs are designed. For example, Medicaid revenues could decline by 20 percent to 22 percent on average for Kentucky hospitals and between 18 percent and 20 percent for hospitals in Indiana. Those states apply work requirements to both traditional Medicaid beneficiaries and to those who became eligible through the Affordable Care Act (ACA) Medicaid expansion.

Medicaid work requirements could contribute to an increase in uncompensated care costs for all hospitals across states that implement them, totaling between $2.5 billion to $3.7 billion in 2019. Because most people who lose Medicaid coverage are ineligible for premium subsidies in the health insurance marketplaces and would not have jobs that offer employer-sponsored insurance, many would become permanently or temporarily uninsured. As in the case with Arkansas, Medicaid beneficiaries who lose coverage due to work requirements may be “locked out” of reenrolling for a certain time period. Even after this period, they will need to prove they are working the required number of hours to regain Medicaid coverage. This leads to permanent uninsurance or extended gaps in coverage, increasing hospital uncompensated care costs.

Lower Medicaid revenues and increased uncompensated care costs will reduce hospital operating margins. For example, hospital operating margins — a measure of hospitals’ profitability on the income or losses from patient care — for Alabama hospitals would be –2.3 percent in 2019 without Medicaid work requirements. With work requirements, hospital margins would be reduced by up to 0.6 percentage points, meaning that for every dollar of revenue from patient care, the hospital would lose 0.6 cents. Implementing work requirements will impact hospitals differently across states based on hospital payer mix, the portion of total Medicaid enrollees subjected to work requirements and the proportion of those who lose Medicaid coverage and become uninsured.

Medicaid work requirements would further reduce operating margins for rural hospitals that are already operating at a loss on patient care. For example, hospitals in Kentucky, which applies work requirements to both traditional and expansion eligible beneficiaries up to age 64, could see a change in operating margins of between –1.7 and –3.1 percent.

“At a time when many rural hospitals throughout the nation have shuttered, the move to impose work requirements on Medicaid beneficiaries ultimately weakens hospitals,” wrote Allen Dobson, one of the reports authors. “Because hospitals are often a major economic engine in a community, these work requirements can hurt the entire local economy.”

For more information on the report, click here.