Part I of a Series: Overview
Three Kinds of States
Federal law now mandates that specific adults enrolled in the Medicaid program must show compliance with work and community engagement requirements. Beginning January 1, 2027, the federal government will no longer provide states with matching funds (currently 90%) for any adults who do not comply with federal rules. The Congressional Budget Office (CBO) estimates that the federal spending will be reduced by $325.89 billion over 10 years due solely to the work and community engagement provision. Due to the “multiplier effect,” of a 90% match rate, the collective economic loss to states could reach $1 trillion.
Federal Requirements
Under Section 71119 of he 2025 Act, formerly One Big Beautiful Bill,” [1] most of the 14 million adults made eligible for Medicaid under the Affordable Care Act (ACA) will be required to demonstrate compliance with any of the following activities. Each month, states will receive federal funding for an individual only if the individual:
Works no less than 80 hours
Completes no less than 80 hours of community service
Participates in a work program for no less than 80 hours
Is enrolled in an educational program at least half-time
Engages in any combination of the activities for a total of no less than 80 hours
Has a monthly income that is not less than the applicable minimum wage requirement under section 6 of the Fair Labor Standards Act of 1938, multiplied by 80 hours
Has an average monthly income over the preceding six months that is not less than the applicable minimum wage requirement under section 6 of the Fair Labor Standards Act of 1938 multiplied by 80 hours and is a seasonal worker.
The work and community engagement requirements do not apply to “Specified Excluded Individuals.” A Specified Excluded Individual is an individual who is:
An Indian or an Urban Indian
A California Indian
Has otherwise been determined as an Indian for the Indian Health Service
The parent, guardian, caretaker relative, or family caregiver of a dependent child 13 years of age and under or a disabled individual
A veteran with a disability rated as total
Medically frail or otherwise has special medical needs as defined by the Secretary of Health and Human Services
Participating in a drug addiction or alcohol treatment and rehabilitation program
An inmate of a public institution
Pregnant or entitled to postpartum medical assistance.
Diverse Population
The population subject to the new work requirements is quite diverse, as the group spans a period of 46 years from the youngest (19) to the oldest (65). The population varies greatly by work history, level of education, health status, geography, length of time on Medicaid, veteran status, family history, involvement with the child welfare and judicial systems, previous health coverage through the private sector, Medicaid and the state Children’s Health Insurance Program (CHIP) and the use of other means-tested public assistance programs such as the Supplemental Nutrition Assistance Program (SNAP).
States will need different strategies for engaging different populations.
80 Hours Are Not Enough to Cross the Medicaid “Benefit Cliff”
An individual who works 80 hours per month (960 hours per year) at $7.25 (the federal minimum wage) would earn only $6,960 per year (44% of the Federal Poverty Level (FPL). [2]
The major means-tested public assistance programs create a dilemma for their beneficiaries, commonly referred to as the “Benefit Cliff” or “Poverty Trap.” As income increases, benefits are reduced, or in the case of Medicaid, eliminated altogether. The value of the lost benefits is greater than the gains in income. Thus, for many on public assistance, they perceive the risk to be too great and forego additional earnings in the short-term.
Full-time, year-round employment equals 2,080 hours per year. A single individual needs to earn more than $21,597 (138% FPL) to cross the Medicaid benefit cliff ($10.39 per hour). Policymakers at both ends of the political spectrum generally agree that individuals and families are better off in the long-term by increasing earnings.
Thus, states must first make a foundational choice in the design of their work requirement program, exercising implementation flexibility within the federal framework.
States can choose to either:
- Actively assist individuals to find and increase employment sufficiently to raise their income above 138% of the federal poverty level.
- Passively follow the federal rules.
- Pursue an intermediate strategy that provides some level of limited support for increasing earnings.
Proactively assisting individuals is more likely to maintain health coverage for a greater number of people than passively implementing the framework.
Conclusion
The responsibility for implementing these requirements rests with the states. While federal rules establish the framework, states are not powerless. They can mitigate against the loss of coverage and the impact on their local economies through decisions and choices in the design of their work and community engagement programs.
Other social funding streams offer lessons Medicaid can learn from – and HORNE knows how to turn those lessons into results.
HORNE is a professional services firm founded on the cornerstone of public accounting. Our CPA heritage brings trust and discipline to our brand. HORNE was founded in 1962, three years before the Social Security Amendments of 1965 were signed into law, establishing both Medicare and Medicaid. Our founders, realizing the magnitude and complexity of this legislation to the American people and our Country, dedicated our Firm to be knowledge leaders and flag bearers for integrity and transparency for federal and state governments and providers alike.
Our over 60 years of expertise throughout the healthcare industry, positions us perfectly to serve as a partner to state Medicaid departments and agencies in reducing fraud, waste and abuse through improper payments and other areas of risk, while also managing the critical and complex policy development and rapid program execution that it will take to stabilize state strategy and desired outcomes of this new legislation, while also serving the most vulnerable populations.
HORNE has managed over $120 billion in federal and state programs, easing the burdens on states to ensure compliant, effective, and rapid program deployment.
