GAO: Restrictive Medicaid Waivers Have Steep Administrative Costs

Medicaid waivers that take coverage away from people not meeting work requirements have steep administrative costs, a Government Accountability Office (GAO) report notes. Nevertheless, the report adds, the federal Centers for Medicare & Medicaid Services (CMS) — which approves such waivers — does not require states to include administrative cost estimates in waiver proposals, and it does not factor these costs into its own budget calculations.

As the GAO report makes clear, policies that take health coverage away from people who can’t meet rigid work and reporting requirements don’t just cost eligible beneficiaries their coverage; they also require a costly bureaucracy to implement. Agencies or managed care organizations (MCOs) must send notices and conduct outreach, modify computer systems to track exemptions and work hours, and hire staff to answer questions, process exemption requests, and track compliance.

GAO analyzed the implementation costs in five states with CMS-approved work requirement waivers, ranging from $6.1 million in New Hampshire to $271.6 million in Kentucky. (Beyond the five states that GAO studied, other states have estimated similarly large costs to implement work requirements, and we summarize the full set of public estimates below.)

GAO’s estimates don’t even include all costs associated with the waivers. Some states couldn’t estimate their higher payments to MCOs or other health plans to administer the requirements, and others couldn’t estimate ongoing costs, such as for staff to process exemptions. Many states planned to use non-Medicaid funds, such as from the Temporary Assistance for Needy Families (TANF) program, to cover some costs, which they excluded from their estimates.

Despite these high administrative costs, CMS doesn’t require states to include such cost estimates in their waiver applications. That “runs counter to two key objectives of the … approval process: transparency and budget neutrality,” GAO notes.

CMS can’t determine whether a waiver is budget neutral without factoring in all of its administrative costs. And if it doesn’t factor in all such costs, then it may not receive meaningful public input from key stakeholders concerned about them. Even if these costs are offset by savings as people lose coverage, stakeholders deserve an opportunity to weigh in on waivers that divert state and federal dollars from health care to added bureaucracy. The report also identifies where CMS may be providing federal matching funds for unallowable administrative costs or at a higher match rate than allowable.

GAO recommends that CMS require states to submit administrative cost estimates with Medicaid waivers, factor those estimates into budget neutrality calculations, and assess the risk of paying for unallowable administrative costs. CMS, however, didn’t concur with, or adopt, any of the recommendations.

Here are the administrative cost estimates for state Medicaid waivers, based on publicly available data:

Alaska: $78.8 million over six years, with about $14 million per year in ongoing costs, for legislation that would end Medicaid coverage for people not meeting a work requirement, an official state fiscal analysis projects. Costs include hiring new staff to monitor compliance and process terminations, hiring new administrative law judges to hear Medicaid termination appeals, and supportive services to help enrollees meet work requirements.

Arkansas: $26.1 million, of which the state has already spent more than $24 million implementing its work requirement, GAO reports.

Colorado: over $55 million for fiscal year 2020-21 and $115 million in 2021-22, mainly for changes to the eligibility system and caseworker costs, a fiscal note on a work requirements bill estimates.

Indiana: $35.1 million to implement the state work requirement, including $14.4 million for information technology (IT) changes and $20.7 million for managed care organizations, GAO reports.

Kentucky: $276.1 million to implement the state’s waiver, GAO reports. Most of the costs are for changes to the eligibility system; the rest are for payments to MCOs to implement the work requirements and other beneficiary requirements. The state already spent at least $100 million (through 2018), even though the courts blocked the work requirements and they were never implemented.

Michigan: $15 to $30 million per year, according to House Fiscal Agency administrative cost estimates of legislation to impose a work requirement on Medicaid enrollees. These costs would arise from “added administrative casework and information technology updates required to verify hours worked, qualifying exemptions, and other casework each month.”

Minnesota: $121 million in local government costs in 2020 and $163 million in 2021, according to county-level estimates from Minnesota’s Office of Management and Budget on work requirement legislation. Based on county surveys, the local impact note estimates that counties will need on average 53 minutes to process an exemption, 22 minutes to refer a client to employment and training services, and 84 minutes to verify noncompliance and suspend Medicaid benefits. Providing compliance monitoring and employment and training services to enrollees through contractors could cost $1,157 per enrollee.

Montana: over $24 million per year in administrative expenses to implement work requirements and other waiver provisions, according to a fiscal note on a bill enacted earlier this year.

New Hampshire: $6.1 million to implement the state’s work requirement, including $4.5 million for IT system changes, GAO reports.

Ohio: $12.8 million per year for counties, which are responsible for determining eligibility for Medicaid in Ohio. The state released its estimates in response to public comments that expressed concern about the administrative cost of the state’s work requirement proposal.

Pennsylvania: $600 million, including to hire 300 additional staff, the state Secretary of Human Services testified.

Tennessee: over $44 million per year to implement work requirements that the state enacted, a fiscal note estimates, plus $5.6 million to change the new Medicaid eligibility system that’s scheduled to go live next year.

Virginia: more than $50 million per year to implement the employment supports that are part of that state’s work requirement plan, the state Secretary of Health and Human Resources estimates. The supports are ineligible for federal matching funds.

Wisconsin: $69.4 million to implement the Wisconsin waiver, including work requirements, GAO reports. That includes $12.1 million for IT changes. The total cost over two years will be about $120 million, according to the state Department of Health Services, including for employment services ineligible for federal matching funds.