Insights

Medicaid, the joint federal and state program that provides health care for low-income individuals, has long been a critical part of the U.S. health care system. Since the 1990s, the federal government and states have grappled with the rising costs of health care while simultaneously seeking to extend and ensure access to coverage and care within their communities.  

With recent polling showing that more than a half of Americans believing that over 25% or more of federal spending is wasted, the voices for increased accountability for federal spending that have existed for years have grown to a crescendo with the Trump administration. As many Americans see their dollars going to programs they view as highly questionable, spending on Medicaid and Medicare is being swept up into these discussions.  In FY2024, the federal government spent over $584 billion on Medicaid and the Children’s Health Insurance Program (CHIP). 

The establishment of the Department of Government Efficiency (DOGE) and a new push for aggressive oversight have renewed attention on program integrity. Supporters of work requirements argue that, unlike Medicare, Medicaid serves a population that has not necessarily contributed to payroll taxes, raising questions about eligibility and personal responsibility. 

The Case for Work Requirements:  Promoting Work and Employment 

With the expansion of Medicaid in the 2000s, some lawmakers have encouraged individuals, especially those seen as able-bodied and without children, toward full employment.  In the 1990’s, bringing work requirements to welfare was an effort that enjoyed the support of not only a Republican-majority in Congress but also of a Democratic president. While Medicaid has traditionally been viewed as separate from the safety nets of Temporary Assistance for Needy Families (TANF) and Supplemental Nutrition Assistance Program (SNAP), the expansion of the program over the past decade-plus has caused it to be viewed—by some at least—as more along the lines of these programs. 

The Case Against Work Requirements:  Administrative Burden and Confusion  

Arkansas’ brief implementation of work requirements revealed serious flaws in adding work requirements to Medicaid. In just nine months, 18,000 enrollees lost coverage, largely due to confusing or inaccessible reporting systems. Nearly one-third of those subject to the rules were unaware of the requirement altogether. 

The Case Against Work Requirements:  Barriers to Access to Coverage and Care 

The experience in Arkansas showed that the additional administrative burden resulted in a loss of coverage and ultimately a loss of care. Delayed care, skipping medications, and the burden of medical debt were all reported.  

Under the Georgia “Pathways” waiver, the experience has played out differently but with a similar net result.  By expanding to 100% of the Federal Poverty Level, the state of Georgia thought that more individuals would enroll in Medicaid, but in the Georgia waiver’s first year, only a little more than 4,200 people signed up, falling far below the state’s projection of adding 100,000 new enrollees.  

The Case Against Work Requirements:  Most Medicaid Enrollees under 65 Are Working 

The challenge posed by work requirements would be deciphering which individuals might truly be avoiding work without imposing barriers for those enrollees who are employed. 

Most Medicaid enrollees under the age of 65 are currently working or otherwise unable to work because of other responsibilities, such as being a caregiver, or having a disability.  In 2023, the Kaiser Family Foundation found that 64% of Medicaid enrollees were either working full- or part-time, and 29% were not working because of caring for one or more dependents (12%), having a disability or illness (10%), or attending school (7%).  Eight percent of individuals were retired, unable to find employment, or not working for another reason.   

Working does not necessarily mean you have access to health care coverage.  Employed Medicaid enrollees often work for small employers that do not provide health coverage, or the cost of coverage their employer does offer is simply too much for them to afford.  

Medicaid and the Budget Debate in Congress  

With the federal debt exceeding $36 trillion and no apparent slowing in sight, a significant voice of the Republican majority in Congress will continue the push for savings and cost-cutting measures as part of this year’s congressional budget and as part of the budget reconciliation process. 

The House-passed budget called for $880 billion in savings from programs within the jurisdiction of the House Energy & Commerce Committee.  As Medicaid accounts for 90% of the Committee’s outlays, programmatic changes in Medicaid are in the offing. 

In 2023, House Republicans sought to add Medicaid work requirements, also known as “community engagement” requirements, in H.R. 2811, the Limit, Save, Grow Act of 2023.  Community engagement was defined as participating in work-related activities for at least 80 hours per month.  Based largely on the experience of Arkansas, the Congressional Budget Office (CBO) estimated adding work requirements would save the federal government $109B over 10 years.  CBO also estimated the number of people without health insurance would increase by 900,000, the employment status of and hours worked by Medicaid recipients would be unchanged, and state costs would increase by $65B. 

In December 2024, then President-elect Donald Trump asked Congress to include an increase of the debt ceiling in their continuing resolution spending bill.  At that time, Congressional leaders balked at the idea.  But, with the federal government set to hit the debt ceiling again in July 2025, Congressional Republicans announced at the end of March 2025 that they had agreement to include a debt ceiling increase in the budget reconciliation package.    

Fights over the debt ceiling have become increasingly common in recent years, and once again, lawmakers find themselves squabbling over what to do so the federal government is able to pay its bills.  If there’s anything Congress can’t do, it’s to take no action at all, as it would mean disastrous implications for both the US and global economies. 

A Brief History of the Debt Ceiling 

The debt ceiling, set by Congress, is a cap on the total amount of money the Department of the Treasury can borrow.  The ceiling applies to nearly all debt accrued by the federal government, including over $28 trillion in debt held by the US public, and $7 trillion in debt the federal government owes itself for programs like Medicare and Social Security. 

It should be noted that debt and deficit have different meanings.  The deficit refers to the difference between revenue the federal government takes in from taxes and other sources across each fiscal year, while the debt refers to deficits accrued across multiple years. 

The debt ceiling wasn’t always around.  Originally, Congress signed off on all debt by authorizing individual bonds through legislation.  However, the cost of financing America’s involvement in World War I led Congress to establish a debt limit though the Second Liberty Act  to simplify the borrowing process and allow the Treasury Department to issue as many bonds as needed instead of waiting for Congress to approve every single bond. 

In recent years, rising national debt and an increasingly polarized Congress have made the process of raising the debt ceiling much more contentious.   Parties have occasionally sought policy concessions from one another in exchange for agreeing to raise the debt limit, leading to a few occasions where political brinkmanship has actually caused the federal government to hit the debt limit and trigger debt ceiling crises in 1995-1996, 2011, and 2013, when the government became uncomfortably close on defaulting on its debt. 

The last time the debt ceiling was raised was on June 2, 2023, to its current level of $36 trillion in the Fiscal Responsibility Act. 

What Happens If the Debt Ceiling Isn’t Raised? 

Hitting the debt ceiling would mean the federal government would eventually be unable to make its debt payments after a certain period of time.  This would result in the government defaulting on its debt obligations, something that has never happened in US history. 

With the government unable to pay its debts, millions of daily obligations including Social Security payments, salaries for federal civilian employees and military servicemembers, veterans’ benefits, utility bills, and others, would have to be at least temporarily defaulted.  Next, global financial markets would enter a state of turbulence, as both international and domestic markets rely on the stability of US financial instruments and the economy.  Additionally, interest rates would rise and the demand for Treasury securities would fall as investors begin to reconsider the safety of Treasuries and either pull back or stop investing entirely.  Higher interest rates would in turn have strong reverberations across the economy, impacting credit cards, mortgages, car loans, and other forms of borrowing and investment. 

Even if the government doesn’t actually default on its debt obligations, the mere threat of default could result in some negative economic consequences.  During the debt ceiling crisis of 2011, Standard & Poor’s downgraded the US credit rating from AAA to AA+ with the rationale that the debt limit fight was a sign of “America’s governance becoming less stable, less effective, and less predictable.”  During the 2013 debt ceiling crisis, credit agency Fitch warned it may cut the US credit rating due to political gridlock, and Chinese rating agency Dagong downgraded the US from A- to A.  In 2014, Fitch did however restore the US credit rating to AAA. 

“Extraordinary Measures” to Stave Off Default 

If the federal government does hit the debt ceiling in July, it won’t immediately default on its debt.  That’s because the Treasury Department can take so-called “extraordinary measures” that were previously deployed during the debt ceiling crises in 2011 and 2013.  Extraordinary measures are accounting maneuvers that allow the federal government to continue to borrow money and pay bills without exceeding the debt ceiling.  These measures usually involve not fully investing federal employees’ Thrift Savings Plan and civil service retirement plan funds in special Treasury securities.  For example, if federal employees have invested $100 billion in the Thrift Savings Fund, the Treasury could opt to issue only $90 billion to the fund, creating $10 billion that could be used to auction more debt to the public and raise more money for the Treasury.  After the debt ceiling is raised or suspended, investments in those funds would resume and lost interest is credited back to the accounts, leaving the savings and pensions plans unaffected. 

But extraordinary measures only provide a temporary means for the government to pay its bills after the debt ceiling is reached, and it’s not clear how long the Treasury Department can exercise extraordinary measures after July.  For example, a March 2025 report from the Congressional Budget Office (CBO) projected that extraordinary measures would probably run out sometime at the end of September 2025.  However, CBO said it could be as soon as August 1, 2025, if borrowing levels remained the same.   

What Will Congress Do? 

As in the lead-up to previous debt crises, lawmakers in both parties generally agree on the need to increase the debt limit but have yet to settle on any specific proposals, i.e. the amount of the limit.   

The debt ceiling debate has now made its way into budget reconciliation.  The compromise budget resolution includes instructions for a $5 trillion debt limit increase.  During the debate, Sen. Rand Paul (R-KY) offered an amendment to strike the proposal and replace it with a $500 billion increase, providing a limited, 3-month extension to force Congress to vote again on the debt ceiling before what he called “continuing down the road of fiscal irresponsibility.”  His amendment was shot down 5-94, with fellow Republicans Sens. Lee and Curtis from Utah voting for it. 

The debt ceiling is a bipartisan problem that should involve a bipartisan solution.  That said, Republicans have teed up resolving the debt ceiling using the partisan budget reconciliation process.  What happens if reconciliation fails, or is delayed to the point that the federal government comes close to defaulting on its obligations?  How will Democrats react if Congressional Republicans and the Trump administration need their votes to raise the debt ceiling when they’ve been left out in the cold during the budget negotiations?