Future Changes to Medicaid Relating to Employee Benefits

Filed under: Benefits

Medicaid provides health and long‑term care benefits to approximately one in five low‑income Americans. Starting in 2027, Medicaid policy changes embedded in the One Big Beautiful Bill Act (OBBB) are expected to significantly increase the number of uninsured people nationwide. 

The new “community engagement requirement” mandates that the majority of Medicaid recipients complete at least 80 hours per month of work, volunteering, or educational activities in order to maintain Medicaid health coverage. Perhaps even more critical, they must submit verification of compliance on a regular basis.

Not only will new applicants who do not meet the work requirement be denied benefits, but Medicaid will end for currently working beneficiaries who fail to document monthly compliance. However, the law does provide exemptions for certain circumstances, including:

• Caregivers of dependent children under age 13
• Disabled (including veterans) and pregnant individuals
• People participating in a substance use disorder program
• Fostered and formerly fostered youth under age 26
• Incarcerated prisoners or those released from incarceration within 90 days
• Hospitalized and nursing facility inpatients
• Residents in areas experiencing high unemployment or a recent disaster (subject to federal criteria)

Be aware that even those exempt from the Medicaid engagement rules must continually verify their exemption status to their state administrator. Note, too, that Medicaid applicants who lose or are denied benefits due to the new work requirements will also be ineligible for premium subsidies to help purchase Marketplace health plan coverage – even if they qualify due to low income. For example:

• A couple with three children will pay approximately $2,600 – $3,400 per month for an unsubsidized ACA plan
• A 60-year old couple will pay an average of $2,666 per month for an unsubsidized ACA plan

Employers also should be aware that starting in 2026, some lawfully present immigrants (e.g., refugees, asylees, and those with temporary protected status) are no longer allowed to receive ACA Marketplace subsidies, so even if their income is below 100 percent FPL, they are paying significantly more for coverage this year.

Trickle‑Down Impact to Employers

The new Medicaid reforms will have a significant impact on employers, particularly those that rely on part‑time, low‑wage, or gig labor. Some workers who lose Medicaid coverage due to higher work eligibility requirements may seek jobs that offer employer‑sponsored health insurance. This dynamic can destabilize industries that depend on hourly workers whose labor is essential but often undervalued, such as food and beverage service, retail, gas stations, personal care services, seasonal work, day labor, contract work, and similar roles. Small businesses that are not required to offer health insurance are especially vulnerable to losing workers to larger employers with benefit offerings.

Furthermore, workers with dependents (e.g., children, spouses) who lose Medicaid coverage may add them to their employer‑sponsored plan. This shift would both reduce take-home income for workers and raise overall plan costs for employers.

Even large employers may feel the heat. That’s because they employ many workers who currently rely on Medicaid health coverage due to low wages and/or insufficient hours worked. This means that thousands of workers employed by some of the nation’s largest employers, including Amazon, FedEx, Walmart, McDonalds, Burger King, Dollar Tree and Dollar General, may lose healthcare coverage altogether.

This dilemma puts a spotlight on the perception that people on Medicaid do not work. In fact, according to KFF 2023 analysis:

• 44% worked full time (at least 35 cumulative hours/week at one or more jobs)
• 20% worked part-time
• 12% did not work due to caregiving responsibilities
• 10% did not work due to illness or disability
• 7% did not work due to school attendance
• 8% of Medicaid adults reported that they were retired, unable to find work, or were not working for another reason

Caregivers Quit

Medicaid is the largest payer of long‑term services and supports for seniors, children, and adults with disabilities. Since the new cuts to Medicaid threaten access to home‑ and community‑based services, some working family members may have to reduce work hours or leave the workforce altogether to provide unpaid care. At very least, the situation can increase the emotional and financial strain on workers already managing complex care responsibilities.

Higher Healthcare Expenses

The loss of Medicaid coverage will likely cause higher levels of uncompensated care. Historically, providers (e.g., hospitals, physician practices) have mitigated losses by increasing rates for those with private insurance, including employer‑sponsored health plans. Therefore, plan sponsors may have to increase plan premiums, deductibles, and copayments for workers. Worse yet, some may be forced to reduce benefits, jobs, hours, or drop coverage altogether to offset escalating healthcare expenses.

Mental Health Care Coverage

Medicaid is the country’s largest single payer of services to treat mental health and substance use disorders. Without access to this valuable resource, millions of people will stop receiving therapy and prescribed medications. This places a larger burden on employers to supplement health plan coverage and programs for new hires who are former Medicaid recipients seeking employer-sponsored coverage.

Smaller Provider Networks

The OBBB also restricts states’ ability to use provider taxes to finance Medicaid, which may cause many programs to reduce provider payments. Diminished reimbursements may lead more physicians to stop accepting, limiting, or continuing to see Medicaid patients. Some may decide to relocate to greener pastures. This not only affects Medicaid enrollees, but people with employer‑sponsored insurance as well, leading to narrower in-network access to primary and specialty care.

Reduced Obstetric Care

In 2027, given the financial strain due to higher uncompensated care and reduced Medicaid reimbursements, more facilities may have to scale back or eliminate critical services. We have already seen that obstetric care is particularly vulnerable: Becker’s Hospital Review reports that in 2025, there were 29 maternity service facility closures. In 2026, three more have already closed. Particularly in rural areas, facilities that close labor and delivery units force pregnant individuals to travel farther for care – or receive no care at all. This increases the risk of complications during pregnancy and delivery, further contributing to the nation’s already high rates of maternal and infant mortality.

Reduced Safety Net Facilities

Safety‑net providers, such as community health centers and public hospitals, serve as essential access points for uninsured and low‑income populations. As Medicaid cuts increase the number of uninsured patients, 109 safety-net hospitals across the country may be impacted, according to new research from the Harvard’s School of Public Health. Note that among safety-net providers, 15 percent are rural and 85 percent are urban. While the $50 billion Rural Health Transformation Program is designed to help offset cuts, the money is expected to cover less than a third of funding needed in rural communities – and urban facilities will not benefit at all.

The closing of public safety-net facilities pushes more patients to other providers, making it more difficult (and more expensive) for insured Americans to receive timely and high-quality medical care.

Which States Will Be Most Affected?

The new law disproportionately affects people enrolled in states that have expanded Medicaid eligibility. Even so, the restrictions on provider taxes to finance Medicaid will also impact non‑expansion states. Although the law allows states to request waivers for counties with very high unemployment or disaster‑declared areas, only a small fraction of counties consistently meet these criteria, and the waivers require frequent renewal. Thus, increased administrative burdens will impact all state Medicaid programs.

Unfortunately, there is a large body of evidence that indicates Medicaid work requirements do not increase employment. Instead, they are associated with higher medical debt, delayed care, and reduced medication adherence among those who lose coverage. Seeing how today’s Medicaid recipients will represent a higher percentage of the future labor pool, they may enter the work force with poorer health and strained finances.

The fallout of the new Medicaid requirements creates a more challenging environment for employer‑sponsored health benefits. Companies should be prepared to reevaluate plan designs, cost‑sharing structures, and incorporate more company-sponsored resources and programs in response to rising costs and this shift in coverage responsibilities.

 

 

 

 

 

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