More Evidence for Medicaid Work Requirements

After years of disagreement, and a change of direction at the federal level, Arkansas finally has a work requirement for a portion of its Medicaid population. The controversy over this requirement did not abate upon federal approval, but continues today. For those who think that a work requirement is punitive towards those on Medicaid, a new study by the Buckeye Institute in Ohio presents a case for reconsideration.

According to this study, Healthy and Working: Benefits of a Work Requirement for Medicaid Recipients, requiring able-bodied, non-caregiving Medicaid recipients to work or look for work can have a huge positive effect for them.

The authors point out that “although Medicaid provides little-or no-cost health care coverage, that coverage disappears when a worker reaches a threshold income.” This design of the Medicaid program is a big disincentive for Medicaid recipients to work or, if they are working, to work longer hours or seek positions that pay higher. What does this lead to?

Medicaid’s income-eligibility requirement negatively affects labor force participation by creating a disincentive for Medicaid recipients to maintain meaningful employment. Data and theory show that this disincentive, in turn, reduces human capital in the long-term as Medicaid recipients drop out of or never join the labor force.

A work requirement does not fix this disincentive directly. Instead, it is a workaround that provides another incentive for recipients to work. The study’s authors examine a variety of literature that finds that work requirements do indeed lead to higher workforce participation for individuals in government programs.

Looking at the data, this study concludes that Medicaid work requirements will have a large beneficial effect on recipients, namely: “…the work requirement leads to much higher real lifetime earnings. The lifetime, real, undiscounted difference in earnings is $212,694 for women with Medicaid coverage, and $323,539 for men with Medicaid coverage.”

The empirical support for work requirements is not based on the notion that Medicaid recipients are lazy and must be forced to work by the government. Instead, it is based on the fact that people respond to incentives. Medicaid’s design provides an incentive for people not to work or, if they are employed, to work less than they otherwise might be able to do. Clearly, the larger focus should be on reforming the program to remove this disincentive. Until that happens, however, a work requirement is a way to counteract this flaw in Medicaid’s design. This latest study from the Buckeye Institute indicates that such a requirement will have positive effects on Medicaid recipients.