Arkansas was the first state to implement work requirements in Medicaid, targeting enrollees that became eligible through the ACA Medicaid expansion. The state began gradually rolling out the work requirement program in June 2018, starting with enrollees ages 30 to 49 and expanding to enrollees ages 19 to 29 in January 2019.

Early results from Arkansas have been striking. The state used an automated exemption process based on other known state data about enrollees and also issued letters, phone calls, and emails from the Arkansas Department of Human Services to affected Medicaid enrollees to inform them of the new policy. Despite these efforts, nearly 8,500 people lost their Medicaid coverage within the first four months of the program.2 Data show that between 23 percent and 29 percent of the targeted population either did not meet the work requirement or failed to report their work activities each month. Assuming these rates continue, nearly 50,000 (29%) of the state’s estimated 167,000 Medicaid enrollees targeted for the program may lose their coverage.3 Simply failing to report work activities for three months during the year for enrollees who would otherwise meet the requirement would result in loss of coverage.

Reductions in Medicaid coverage will have an impact on hospitals by reducing Medicaid payments and increasing uncompensated care costs, which will result in lower hospital operating margins. How the work requirements are designed will play a key role in how many beneficiaries lose coverage and the resulting financial impact on hospitals.

The following analysis estimates the impact of Medicaid coverage loss on revenues, uncompensated care costs, and operating margins for hospitals in the affected states. The analysis excludes hospitals in Utah and Virginia because their work requirements would be applied to the expansion populations, and Virginia has only recently expanded Medicaid and Utah has not yet expanded the program. Thus, data are not yet available on the impact of Medicaid expansion on coverage and hospital financial status. We present impact estimates under two scenarios: a low coverage loss assumption and a high coverage loss assumption. See How We Conducted This Study for details.

Impact on Medicaid Revenues

The loss of Medicaid coverage because of implementing work requirements will have a significant impact on Medicaid revenues for hospitals in all the study states. However, the impact will vary across states because of the design of the work requirement programs. Five states (Arizona, Arkansas, Michigan, New Hampshire, and Ohio) target work requirements only to adult enrollees who obtained eligibility through the ACA expansion. Indiana and Kentucky will apply work requirements to both the traditional Medicaid and expansion populations. Six states that did not expand Medicaid (Alabama, Mississippi, Oklahoma, South Dakota, Tennessee, and Wisconsin) will apply work requirements to adults in the traditional Medicaid program. All states have a maximum age limit that ranges from 49 to 64. Exemptions from the work requirements vary significantly by state, but typically focus on enrollees that are medically frail, full-time students, or caregivers.

Exhibit 2 shows the estimated reductions in Medicaid revenues in acute care hospitals.4 We estimate that Medicaid revenues will decline by 18 percent to 20 percent on average for hospitals in Indiana and by 20 percent to 22 percent for hospitals in Kentucky (Exhibits 2 and 3). These two states apply work requirements to both traditional and expansion eligible beneficiaries up to age 59 and 64, respectively. In contrast, Arizona, Arkansas, and Ohio will apply work requirements only to the expansion population up to age 49. We estimate that Medicaid revenues will decline by a lesser degree (10% to 14%) for hospitals in these states.