Episode 17: Medicaid Work Requirements and Jails
Medicaid work requirements are often presented as a way to reduce government spending and encourage employment. But when policies like this are implemented, the real-world consequences are often more complicated—and sometimes far more expensive than expected.
In July of 2025, the president signed legislation mandating that states implement work requirements for Medicaid recipients. In simple terms, most adults who want to remain on Medicaid will need to prove that they are working or volunteering for at least 80 hours per month.
Supporters of the policy argue that these requirements will reduce waste, save taxpayer money, and encourage employment.
But we already have a real-world example of how these policies play out.
The Arkansas Experiment
In 2018, Arkansas implemented work requirements in its Medicaid program. Several studies of the program found that the policy did not increase employment. Instead, it primarily reduced Medicaid enrollment.
Roughly 18,000 Arkansas residents lost their Medicaid coverage during the program’s implementation.
In practice, “work requirements” functioned less as an employment policy and more as a mechanism for removing people from the program.
A Population That Falls Through the Cracks
Many Medicaid recipients live with serious mental illnesses such as schizophrenia or bipolar disorder. With the right medication and support from family or community members, many of these individuals are able to function relatively well in everyday life.
But functioning with treatment does not necessarily mean someone is capable of maintaining regular employment.
When Medicaid work requirements go into effect, many of these individuals risk losing their health insurance.
Antipsychotic medications that might cost nothing—or perhaps a small copay—under Medicaid can easily exceed $1,000 per month without insurance coverage. Most people on Medicaid simply do not have the resources to absorb costs like that.
Once coverage disappears, medication adherence often disappears with it.
The Disability Exemption Problem
Supporters of work requirements often point out that exemptions exist for individuals who receive Social Security disability benefits.
This is true.
But the majority of people with serious mental illness are not receiving Social Security disability benefits. Obtaining approval for SSDI can be a lengthy and difficult process, even for individuals with severe conditions.
As a result, many people with serious mental illness remain in a gray area: too impaired to maintain steady employment, but not formally classified as disabled under federal standards.
These individuals are particularly vulnerable to losing Medicaid coverage under work requirement policies.
What Happens Next
When people with serious mental illness lose access to their medications, their symptoms often return.
Individuals who had been relatively stable in the community can quickly experience increases in psychotic or manic behavior. Unfortunately, situations like this frequently end with police involvement—and eventually, jail.
Once someone enters the jail system, the financial dynamics change dramatically.
Under the Constitution, incarcerated individuals have a right to healthcare. Jails must provide necessary medical and psychiatric treatment to the people they detain.
However, jails operate under very different purchasing conditions than Medicaid.
Medicaid programs negotiate drug prices on a large scale. Jails generally do not have that leverage. As a result, the same medication that might cost taxpayers roughly $100 per month through Medicaid can cost a jail $2,000 per month when purchased at retail rates.
Housing costs add another layer. Someone who may have been living with family members in the community—at essentially no cost to taxpayers—now becomes the responsibility of the local jail system. Housing an inmate often costs counties around $100 per day or more.
The Cost-Shifting Problem
Consider a simplified example.
A Medicaid work requirement removes someone from coverage, saving the state approximately $100 per month in medication costs.
But if that same individual decompensates, is arrested, and ends up in jail, the county may now be paying roughly $2,000 per month for the same medication, plus about $3,000 per month in incarceration costs.
What began as a $100 monthly savings at the state level can quickly become a $5,000 monthly expense at the county level.
For taxpayers, this distinction is largely meaningless. Whether the bill is paid through state taxes or local taxes, the same public ultimately bears the cost.
The question becomes simple: would we rather pay $100, or $5,000?
The Likely Outcome
When Medicaid work requirements take effect nationwide in January of 2027, the most likely outcome—based on available evidence—is not a surge in employment.
Instead, we are likely to see large numbers of people lose health insurance coverage. Among those affected will be individuals with serious mental illness who rely on Medicaid to maintain stability in the community.
For some portion of that population, untreated symptoms will eventually lead to police contact and incarceration.
The result will be increased pressure on local jail systems, higher medical costs for counties, and a significant transfer of financial and legal responsibility from state governments to local governments.
In other words, what appears to be a cost-saving policy at the state level will ultimately increase the total cost borne by taxpayers.
A Misallocation of Resources
Policies that shift costs rather than reduce them rarely represent real savings. More often, they simply move expenses from one part of government to another while making the underlying problems worse.
Medicaid work requirements appear poised to do exactly that.
Over time, policies that generate higher costs and worse outcomes tend to be reconsidered. The real question is how much money—and how much unnecessary instability—we will tolerate before that reconsideration occurs.