The Federal and State Fiscal Ripple Effects of Medicaid Work Requirements

The One Big Beautiful Bill Act (H.R.1), signed in 2025, introduced new mandatory work requirements for certain Medicaid enrollees as part of a broader cost-reduction effort. Supporters argue these “community engagement” provisions will promote self-sufficiency and reduce government spending. However, the fiscal picture is more complex. While the law achieves large federal savings on paper, those savings primarily result from coverage losses, not from higher employment or program efficiency.

Note: This article is part of Infocap’s ongoing blog series exploring the new Medicaid eligibility and work requirements introduced under the One Big Beautiful Bill Act (H.R.1). Each post examines a different dimension of the law’s impact, from the economic impact, administrative challenges, and the effects of access to care.

Federal Spending Cuts Driven by Coverage Losses

Under H.R.1, adults aged 19 to 64 in the Affordable Care Act (ACA) Medicaid expansion group must complete at least 80 hours per month of work or other qualifying activities (education, job training, or community service) to maintain eligibility.

The Congressional Budget Office (CBO) projects these new rules will reduce federal Medicaid spending by roughly $300–344 billion over the next decade. Yet, the savings arise almost entirely from fewer people remaining insured.

Prior analyses show that work requirements do not substantially increase employment rates; most affected adults are already working or face legitimate barriers such as illness, disability, or caregiving responsibilities. The end result is disenrollment—millions losing Medicaid coverage due to reporting or compliance hurdles.

Earlier CBO models indicated around 5 million fewer enrollees by 2034 due to the work requirements alone. Because H.R.1 also blocks those disenrolled from accessing ACA marketplace subsidies, most of these individuals will likely become uninsured.

In essence, the federal “savings” come from cost-shifting rather than cost reduction, transferring financial risk from the federal government to healthcare providers, states, and taxpayers.

State-Level Budget Implications

For state governments, the fiscal calculus is mixed. While states could see some savings due to fewer Medicaid enrollees, these are offset by lost federal funds and higher administrative costs.

• Loss of Federal Matching Dollars:
  Every disenrolled individual means lost federal matching funds that would have flowed to local providers. For example, losing coverage for a $5,000-per-year enrollee saves the state only $500 (its 10% share) but removes $4,500 in federal funds from the local economy, reducing revenue for clinics, hospitals, and the community. On a large scale (millions of people), this withdrawal of federal health funding can impact state economies, healthcare jobs, and tax revenues.
• Administrative Costs of Compliance:
  Implementing work requirements brings significant new administrative expenses for state agencies. States must upgrade IT systems, integrate databases, train staff, conduct outreach, and process ongoing verifications and appeals, all of which require upfront and ongoing investment. The Government Accountability Office (GAO) examined states’ cost projections for prior Medicaid work requirement demonstrations and found wide ranges, from under $10 million in some states up to $270+ million in others, to design and implement the policy. Notably, Georgia’s limited work requirement program (launched in 2023) had already cost over $40 million through mid-2024, with approximately 80% of those costs going to administration and consultants rather than medical care.
• Insufficient Federal Assistance:
  H.R.1 does provide some financial help: a one-time $200 million fund for state implementation and the ability to claim enhanced federal match rates (75% or 90%) for certain administrative expenses. While helpful, this funding is likely insufficient given the scale of required changes across 50 states. States noted that accelerated timelines and simultaneous projects can drive costs above normal levels. Multiple states in a 2025 survey expressed concern that even with federal dollars, the new requirements will “further strain already constrained state budgets”. Any state dollars diverted to administration or covering gaps in federal support are resources not available for other health priorities.

The result: modest enrollment-related savings but significant administrative and economic trade-offs. State Medicaid directors will need to budget carefully for large IT overhauls and workforce expansion (discussed further in upcoming posts on administrative challenges) to comply with the mandate.

Infocap Insight: Building Capacity Through Intelligent Automation

As Medicaid agencies prepare to meet new federal mandates, eligibility modernization and automation are key to minimizing administrative burden and preventing coverage errors.

Infocap helps government agencies build human-centric, intelligent automation systems that make eligibility verification, reporting, and appeals processing observable, explainable, and accountable. By connecting data across legacy systems and automating compliance workflows, states can meet H.R.1 requirements while protecting program integrity and access for those who qualify.

Want to learn how Infocap’s experience with ACA’s eligibility requirements solution can help your agency or organization? Let’s talk.