Balancing Cost, Compliance, and Coverage: The Fiscal and Human Impact of Medicaid Work Requirements

In our ongoing series on Medicaid Eligibility Series, we’re exploring the far-reaching implications of the One Big Beautiful Bill Act (H.R.1). This post focuses on the financial, operational, and human impacts of implementing Medicaid work requirements, and how states can mitigate risks while preserving program integrity.

The Financial Challenge

Standing up the infrastructure for Medicaid work requirements will require hundreds of millions of dollars nationwide. According to KFF, GAO reports that some states estimate over $200 million each for implementation. For state budget officials, a big question is how these costs will be paid for and whether they are sustainable.

H.R.1 provides $200 million for state implementation grants via CMS, and crucially, it allows states to claim elevated federal matching rates for many administrative expenses. Typically, Medicaid admin is matched 50% by the federal government, but for approved IT systems improvements, a 90% federal match can apply, and for certain other activities like eligibility determinations a 75% match can apply. States will certainly leverage these opportunities. For example, if a state needs to spend $50 million on system changes, up to $45 million could be covered by federal funds at 90% match, leaving $5 million state cost (plus any portion not eligible for enhanced match). The $200 million appropriation can further defray costs; half of it is to be split equally among all states, and the other half distributed based on each state’s Medicaid population size. Roughly, that means every state gets at least $2 million, and larger states a good deal more, to help with startup costs.

While this federal support is significant, many states are signaling that costs will exceed these amounts. Upfront IT investments, rapid hiring, extensive outreach campaigns—all are expensive, especially on a tight schedule. Additionally, accelerated timelines often drive up vendor costs, as projects might require paying for expedited development or parallel teams to meet deadlines. If states have to implement multiple policy changes simultaneously (as is the case here), they may need to bring on additional consulting help or overtime for staff, again increasing expenses. There is considerable concern about the fiscal implications, even with federal matching dollars, given states’ already tight budgets.

The long-term costs also persist. Once implemented, states must maintain verification processes, data interfaces, and outreach programs indefinitely. Unless the policy is reversed by future legislation, states must absorb these recurring costs. While proponents argue that reduced enrollment will save money, most savings accrue at the federal level; states save some matching funds but also lose federal revenue as discussed. If many enrollees churn on and off coverage or require more touchpoints to maintain eligibility, the administrative overhead per enrollee increases, which could make Medicaid less cost-efficient on a per-person basis.

Financial Risk and Penalties

Another cost dimension lies in eligibility error penalties. H.R.1 tightens federal enforcement for improper eligibility determinations. If states erroneously disenroll eligible individuals, they could face federal sanctions or corrective action plans, further straining budgets.

To avoid these outcomes, states must prioritize accuracy and user-centered design over speed. Thus, there is a financial incentive for states to do this right, not just fast.

Minimizing Coverage Losses

While the law focuses on work and accountability, the real-world impact will be felt most acutely by enrollees. States acknowledge the risk of coverage loss through confusion or administrative error and are taking steps to mitigate it.

Key strategies include:

• Proactive outreach: Starting months before 2027, states plan broad communication campaigns to explain new rules, how to report, and what exemptions exist. However, a catch-22 is evident: outreach in 2026 will be based on what the state thinks the rules will be, but if federal guidance (due mid-2026) differs in any aspect, messaging may have to change. Some states worry that early outreach without final CMS guidance could confuse people further if they have to send updates or corrections to prior communications. This makes timing tricky—wait too long for perfect information and people won’t have time to prepare; start too early and risk misinformation. One can foresee the need for continuous communication, clarifications, and likely a robust call center operation to answer individual questions.
• Data-driven verification and streamlined compliance: States are exploring data matches to automatically verify work status, reducing the need for monthly paperwork from enrollees. For example, when quarterly wage data shows consistent employment, states may waive monthly reporting requirements.
• Accessible reporting: Special attention is needed for populations at risk of falling through the cracks. Rural enrollees were explicitly called out—those with limited internet access could struggle with an online reporting system. States may need to set up phone reporting hotlines or in-person reporting options via local offices to accommodate them.
• Hardship exceptions: Creating clear, user-friendly processes for “good cause” exemptions (e.g., illness, family emergency, job loss) could prevent unfair loss of coverage.
• Phased enforcement: Some states may initially send warning notices instead of immediate terminations to avoid mass disenrollment.

Additionally, focus is being given to:

• seasonal workers whose variable income may cause them to fall below the 80-hour threshold intermittently. States are exploring averaging methods or catch-up periods to protect coverage continuity.
• people with non-SSI disabilities or undiagnosed conditions who might not be officially exempt but still find working difficult. Training caseworkers or care coordinators to help these individuals document a medical frailty exemption (if applicable) or connect them to employment supports will be important from an access standpoint.

Collaborating for Success

The administrative demands of Medicaid work requirements are extensive, and the stakes are high. State Medicaid agencies are effectively being asked to build a new bureaucracy within the existing one—a bureaucracy to monitor the work efforts of millions of adults, on a continual basis.

Implementation success will depend on federal-state collaboration and knowledge sharing. Early, detailed guidance from CMS, adequate funding, and technical assistance will be critical. States can also learn from one another through groups like NAMD (National Association of Medicaid Directors), exchanging best practices for data matching and integration techniques, outreach strategies, and equitable enforcement.

Stakeholders, from hospitals to non-profits, also play a role. Community partners can assist beneficiaries with compliance, reporting, education, and appeals, helping reduce confusion and prevent unnecessary coverage gaps.

A Defining Test for Medicaid Administration

Ultimately, H.R.1’s work requirement rollout is a defining test of administrative capacity for Medicaid programs. States must meet the federal mandate in good faith, but design the process in a way that is administratively feasible and minimizes negative outcomes.

For government healthcare executives leading this charge, focusing on strong project management, interagency coordination, and continuous stakeholder engagement will be keys to success. The task is daunting, but with the collective effort of federal partners and state teams, it is possible to implement the law’s requirements in a way that upholds the integrity of Medicaid and serves the public interest.

With strategic investment in technology, data quality, and human-centered automation, states can create systems that uphold accountability without compromising access—ensuring that every automated decision is observable, explainable, and accountable.

How to Make This Happen

As you plan for new workloads, higher administrative costs, and the need to protect coverage for vulnerable residents, having the right implementation partner can make the difference between reactive firefighting and proactive, measured rollout. Building on more than a decade of instrumental involvement in CMS eligibility work, Infocap works with government health leaders so that compliance does not come at the expense of access. Contact Infocap to learn how a rapid “work requirements readiness” review can help your organization balance federal expectations with your mission to serve beneficiaries. Let’s talk.