Tightened Medicaid Eligibility on the Horizon

Filed under: Benefits

Medicaid is a combined federal and state program that provides health coverage to low-income populations. Eligibility has historically been based on income and other factors, such as disability status. Starting in 2027, new legislation mandates that for certain Medicaid-eligible recipients to qualify for benefits, they must meet federally mandated work requirements. The eight states that did not expand Medicaid (Alabama, Florida, Kansas, Mississippi, South Carolina, Tennessee, Texas, and Wyoming) are exempt from the new federal work rules.

The new requirements target people aged 19 to 64 who are enrolled in state programs under the Affordable Care Act’s Medicaid expansion. This includes more than 20 million adult beneficiaries who earn up to 138 percent of the federal poverty level (e.g., $22,025 a year for a single person). To maintain Medicaid eligibility, these individuals must engage in at least 80 hours per month of one or more of the following activities:

• Employment
• Participation in a work program, such as job training
• Enrollment in an educational program (at least half time)
• Community service activities
• A combination of these activities

Compliance Rules

One of the quirks of the new engagement rules is the “look-back” review. When a person applies for Medicaid benefits, eligibility is reliant on the state verifying that she has met the community engagement criteria for at least one to three months (at the discretion of the state) prior to enrollment. Once enrolled, states have the option to require recipients to submit verification every month or for a longer period up to every six months.

To verify eligibility status, states must use payroll and/or encounter data (e.g., doctor visits, hospitalization) to verify compliance with the new engagement rules. Medicaid applicants may require additional employer assistance to help track and report eligibility data via:

• Employer payroll data (e.g., pay stubs, timecards)
• Tax forms
• Digital time-tracking tools (e.g., clock in/out mobile apps)
• HR Information Systems (HRIS) to verify worker start dates (tenure) and current status (full-time, part-time)
• Spouse/partner income – income eligibility includes total household Modified Adjusted Gross Income (MAGI)

Ongoing Tracking and Reporting

It is important to recognize the level of ongoing documentation required to remain eligible for Medicaid benefits. Even recipients who meet the required work or volunteer hours could lose coverage due to the administrative reporting mandate. In fact, even those exempt from the Medicaid engagement rules must periodically verify their exemption status to their state administrator.

If an enrollee fails to submit timely verification documents, the state Medicaid program must issue a notice of non-compliance via the mail and at least one other means of contact. Once that notice is issued, the Medicaid recipient has 30 more days to verify compliance or he is automatically disenrolled.

Projections from the Center for Budget and Policy Priorities indicate that a large percentage of Medicaid recipients will lose coverage – not because they do not meet the work requirements – but because they do not meet the regular verification mandates. Employers should try to be highly responsive to worker requests for assistance; perhaps developing a system to make timely records easily accessible to help Medicaid-eligible workers meet the administrative requirement. In this day and age of automatic paycheck deposits, workers may be remiss in retaining the necessary records for the new eligibility rules.

Make it easy on both workers and HR staff by establishing a seamless way for workers to access the data they need for verification.

New Provider Tax Rule Likely To Handcuff States

The federal government pays for more than half the money for Medicaid benefits, with states funding the remainder. States use a variety of funding strategies, including taxes on institutional providers such as hospitals, nursing facilities, and managed care programs. Every state except Alaska taxes providers to help fund their Medicaid program.

The new Medicaid rules also place new limits on how much states can tax providers. Some of the new provisions took effect immediately (July 2025), while others were given intermittent deadlines up until 2028. The effect of the new provider tax regulations essentially:

• Prohibits new provider taxes or increases to existing ones
• Reduces the limit to how much can be charged in states that adopted Medicaid expansion
• Requires the provider tax be imposed on all providers within a specified category (i.e., not exclusive to providers with Medicaid patients)

These new restrictions on provider taxes are expected to substantially cut state funding for Medicaid. This, in turn, will reduce provider reimbursement rates, reduce covered services, lead to more restrictive eligibility, and may even lead to the shutdown of public hospitals and clinics that provide a health safety net for state residents.

It is worth noting that when emergency funding ended for the COVID-19 pandemic, states lost enhanced federal Medicaid funding. Since then, federal funding has increased by only .2% while state funding increased 16%. In other words, states already have been forced to escalate their spending to keep Medicaid fully funded, so diminished provider taxes moving forward will worsen an already challenging situation.

Federal Savings

Legislators cite a couple of goals for the new Medicaid eligibility rules. First, they believe the new work requirements will cut down on fraudulent benefits for able-bodied people who can but choose not to work. Second, the annual cost savings generated by the new rules will help reduce the annual deficit.

According to KFF, the new eligibility rules and provider tax restrictions are estimated to reduce federal Medicaid spending by 14% and yield over $911 billion in savings over a decade. States that implemented the Medicaid expansion offered through the ACA will experience the highest cuts, but all states will be impacted to some degree.

 Federal Savings (in $ billions)

Medicaid Expansion States	All States
$326B – new work requirements	$149B – limits on state-directed payments
$102B – provider taxes	$122B – eligibility rule
$63B – eligibility redeterminations	$89B – provider taxes
$36B – other	$25B – other

Interestingly, KFF purports that only a quarter of the expected savings will occur over the first five years of implementation. That’s because the $50 billion Rural Health Fund designed to offset losses incurred by 1,800 hospitals in rural areas will also offset the Medicaid savings. That fund provides $10 billion per year from 2026 through 2030.

Beginning in 2027, the tightening of Medicaid eligibility rules is expected to significantly increase the number of uninsured people nationwide. Reducing the number of people with access to healthcare services creates additional challenges for employer‑sponsored health benefits. Heading into this year’s open enrollment period, employers may want to consider new plan designs, cost‑sharing structures, and more company-sponsored resources and programs in response to this shift in healthcare coverage responsibility.

---

The Loop Archives