Big Beautiful Sludge

by Greg Rosalsky

Republicans are facing a conundrum.

They want to cut taxes with their “One Big Beautiful Bill.” But the tax cuts they want will explode the federal debt. So they’ve been looking for spending cuts. One big area where they want to slash: Medicaid, which provides over 75 million Americans — including low-income families, seniors, and disabled people — with health insurance.

The conundrum: Medicaid is widely popular, including among many Republican voters in their now more working-class coalition forged by President Donald Trump.

So how can they cut Medicaid while sheltering themselves from the political fallout of cutting Medicaid?

Their answer: work requirements. Draft versions of the bill have included provisions that would force millions of working-age, able-bodied adults to work in order to receive Medicaid — and every six months show the government proof they work in order to remain on the program.

It’s sort of a brilliant answer politically because, on the face of it, the idea that able-bodied adults should have to work to receive government benefits is widely popular. Sure, progressives argue that health care should be a right available to all. But conservatives argue these requirements are necessary to fight “waste, fraud, and abuse.” And, more broadly, that work requirements incentivize people to work and prevent able-bodied, working-age people from freeloading off of hard-working Americans. Some argue that work requirements may even help this non-working population, pushing them to find gainful employment and achieve greater prosperity for themselves or their families. There is some peer-reviewed economic evidence that suggests kicking people off of government health insurance programs can encourage them to work more.

“ I certainly think it's reasonable to impose work requirements for Medicaid,” says Kevin Corinth, a senior fellow at the American Enterprise Institute, a conservative think tank. Corinth says he supports Medicaid and also the many work-requirement exemptions found in the One Big Beautiful Bill, including for disabled people, children, and the elderly. As for those who can work, he suggests, they should work, and he thinks “there is a pretty good chance you’ll see real employment gains” if work requirements get implemented. This nudge to work, he says, could ultimately prove to be beneficial for many in this population.

However, a growing amount of evidence suggests that adding work and other eligibility requirements to social programs fails to do much to actually encourage work. The majority of people who use these programs already work. Or, if they don’t work, it’s often because they’re disabled or elderly or children or have issues that adding work requirements to a government program won’t usually help with.

One of the biggest sources of cost savings from work requirements may not come from eliminating benefits for those who aren’t working. Instead, studies suggest that, in practice, work and other eligibility requirements achieve a lot of savings in a sort of sneaky way. It’s that the eligibility requirements themselves create a bureaucratic rigmarole that many who are eligible for benefits struggle to navigate. A ton of them get lost in the maze of paperwork and get kicked off the program. Call it the paperwork trap (h/t to Planet Money’s Erika Beras for helping coin this term).

In economics, this sort of red tape that makes it harder for people to do or get something is known as “administrative burdens” or “ordeals” (although the behavioral economists Richard Thaler and Cass Sunstein offer a more fun name for it: “sludge”).

Amr Bo Shanab/Getty Images

A Back Door For Cutting The Social Safety Net?

Donald Moynihan, a professor at the University of Michigan’s Ford School of Public Policy, is a leading scholar of administrative burdens.

“ Bureaucracies can often generate administrative burdens inadvertently,” Moynihan says. “But they can also be deliberately created by policymakers who want to reduce the cost of programs by making it more difficult for people to access them.”

The federal government has a wide variety of social programs that vary in difficulty to prove eligibility and obtain benefits. Moynihan points to Social Security as a program that’s more easily accessible, so a much higher percentage of people eligible for it actually use it. Almost all American seniors are eligible for Social Security and the government makes it almost automatic to receive benefits, which is why nearly 100% of those eligible get it. On the other end of the spectrum are programs like the Temporary Assistance for Needy Families (TANF), an old-school welfare program that was reformed under President Bill Clinton back in the 1990s. Programs like these have stricter eligibility requirements, and they’re more difficult to sign up for because people have to prove their eligibility (like, for example, proving how much they make). That results in these programs having a much lower participation rate.

There’s a growing mountain of evidence on the effects of administrative burdens. (For a good summary of this literature, check out this recent essay in the Journal of Economic Perspectives from Moynihan and his co-author Pamela Herd).

As an example, Moynihan points to what happened in Arkansas after they became the first state to adopt work requirements for Medicaid back in 2018. A 2019 study published in the New England Journal of Medicine found that these work requirements failed to boost employment rates much or at all within the first year after they were implemented. Meanwhile, the authors found that thousands of Arkansans who did work or who qualified for exemptions — because, for example, they were disabled or elderly — were kicked off the program.

Moynihan says it's a similar story with the Supplemental Nutrition Assistance Program (SNAP), more commonly known as food stamps. He says SNAP already has work requirements (which Republicans want to beef up in the One Big Beautiful Bill), and evidence shows that existing requirements haven’t done much to encourage work. They mostly just make it harder for people to get food assistance. In fact, evidence suggests that SNAP work requirements have the biggest effect on those least able to work, according to Yale scholars Chima Ndumele and Jacob Wallace.

“The largest effect of work requirements isn't actually to incentivize people to work,” Moynihan says. “The largest effect is to get people who are working and put them in a situation where they're caught in this administrative trap that they simply can't get around. And so they tend to lose benefits even though they are actually fulfilling the requirements. It's the paperwork that catches them.”

If we humans were the perfectly rational creatures of old-school economic theory, these types of administrative burdens wouldn’t do much to trip us up. Back in the early 1980s, economists theorized these “ordeals,” as they called them, could even be beneficial, serving as an efficient way to target benefits to those who want or need them the most.

However, a lot of newer research, especially in behavioral economics, points to how our cognitive quirks and limitations may prevent us from doing what’s in our best interests. For example, we may procrastinate and fail to fill out the necessary paperwork in time. We may suffer from “present bias,” valuing our time now more than our well-being later. We may not even know we have to fill out forms to get benefits or even about these benefits at all.

Studies suggest that low-income populations have a harder time dealing with these administrative burdens. They are often living paycheck to paycheck. Sometimes they’re homeless. Sometimes they have disabilities or chronic diseases. They may have inflexible work schedules or not have a computer. They may have life stresses and struggles that lower their mental bandwidth, and it’s hard for them to dedicate the time and effort to satisfy requirements even though they meet the criteria for assistance.

Kevin Corinth acknowledges that red tape can cause problems and force some legitimate beneficiaries to fall through the cracks. But, he says, the reality is “work requirements are popular, especially among Republicans, but even among many Democrats.” And enforcing those requirements necessarily entails some red tape, as much as he hates it.

Draft versions of the One Big Beautiful Bill have left some discretion to the states when it comes to setting work requirements and how Medicaid recipients have to prove their compliance with them. Corinth argues that states should invest time and effort into “making it as easy as possible to demonstrate compliance, so people can focus on complying as opposed to the actual paperwork part of it.” He suggests administrative burdens can be minimized and not be extremely onerous.

Moynihan, however, suggests that administrative burdens might be the point. He suggests that politicians have learned to use administrative burdens as a sneaky way to cut popular social programs. It gives them more political cover. They can claim that they’re not really cutting these programs. They’re just making sure the right, deserving people get them. But, in effect, they swamp potential beneficiaries with paperwork and other hassles and make it more difficult to get benefits. Some significant percentage gets caught in the spider web of paperwork and, boom, the government reduces how much it spends under the program.

That’s basically what Moynihan sees in the draft versions of the One Big Beautiful Bill. He says it could prove to be the largest cut to Medicaid we’ve ever seen — even though many Republicans are claiming that they’re not really cutting it, just “reforming” it (although there have been some Freudian slips when making that claim). The Congressional Budget Office, a non-partisan budget agency, estimates that the House version of the One Big Beautiful Bill would cut Medicaid spending by almost $800 billion over ten years. And, Moynihan argues, they’re “doing it through the backdoor mechanism of simply making it harder for people to maintain coverage through these administrative requirements.”

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