Medicaid Work Requirements, Labor Market Effects and Welfare

We develop an overlapping generations model with labor supply, health risk, and health insurance choice to evaluate the effects of imposing work requirements for Medicaid eligibility. The model is calibrated to U.S. data and used to simulate counterfactual policies that condition Medicaid access on minimum weekly work hours, with exemptions for the sick and disabled. Our partial and general equilibrium analyses show that such requirements increase labor force participation, reduce Medicaid enrollment, raise the uninsured rate, and boost output. While long-run growth can offset short-run welfare losses, most scenarios lead to net welfare declines for low-income households. High-income households, by contrast, experience welfare gains. When work requirements are extended to include the sick and disabled, the policy yields stronger growth effects and larger welfare gains. Incorporating key features of the Affordable Care Act—such as Medicaid expansion and subsidized private insurance exchanges—creates a less risky environment in which low-income individuals can substitute Medicaid with subsidized private coverage, thereby reducing welfare losses. However, the fiscal burden of insurance subsidies offsets some of the government's savings from Medicaid contraction, resulting in more modest overall growth effects.