KY bill adds a Medicaid work requirement. How else does it change the state’s program?

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House Bill 695 didn’t have much momentum.

That is, until the bill changing many aspects of the state’s Medicaid program gained final passage in the Kentucky legislature with less than an hour to spare to make it safe from the governor’s veto pen.

That’s left many working to figure out what exactly the bill does to the more than $15 billion in Medicaid funds that flow to the state.

Not to be confused with Medicare, which primarily serves seniors, Medicaid is a government-funded health insurance program that provides free or low-cost healthcare to individuals and families whose take home pay is below a certain threshold.

About one-third of all Kentuckians — and four in nine Kentucky children — are Medicaid recipients.

The federal government reimburses states for most of the cost, though states end up paying for roughly one-third of it. Compared to most states, the federal government covers a higher portion of Kentucky’s Medicaid costs at about 77%.

Medicaid’s total cost in Kentucky per year is about $19.6 billion, according to the current state budget. The federal government covers about $15.1 billion of that cost.

That alone is more than the state’s entire General Fund budget, which runs at $15 billion per year. The rising cost of Medicaid in the state was a frequently-cited reason among Republicans who voted for the bill. Sen. Chris McDaniel, R-Ryland Heights, suggested in a floor speech supporting House Bill 695 that the federal government, under the direction of Republican President Donald Trump, could tweak their cost-sharing formula.

“We better understand when those changes come,” McDaniel said. “If the federal government very simply says ‘it’s a 60/40 mix for everybody,’ the cost to this Commonwealth’s General Fund is $4.4 billion — over 25% of the General Fund in new appropriations by a simple, formulaic change.”

The current General Fund annual cost to the state sits at around $2.75 billion, or about 18% of the state’s annual General Fund.

The three biggest changes in House Bill 695 are:

The addition of a mandatory work or job placement program requirement for able-bodied adults with no dependents

Increased legislative oversight and control over the program, which is traditionally more closely directed by the Executive Branch

New limitations on behavioral health, including addiction recovery services, spending via the Medicaid program.

The work requirement

Variations of the final two ideas were present in previous versions of the bill and other bills filed this session, but the insertion of a mandatory work requirement was tucked into the bill in a committee substitute introduced after 9:00 p.m. Friday.

Because the bill passed before the veto period, which began at midnight Saturday, it can withstand a veto from Democratic Gov. Andy Beshear.

While often referred to as a new work requirement program, the program referenced by the bill was already in statute and is technically called a “community engagement” program.

Participation in the program means that an individual is participating in a state-established job placement assistance program; language in the statute states that program “may” utilize a requirements laid out in a Trump-era regulation requiring that people work at least 20 hours a week.

The key difference introduced by the bill is the introduction of the word “mandatory” to the program for those able-bodied Kentucky adults. What currently exists is an optional program; what would exist under the bill is a full-on requirement for that population to be able to get their health care paid for by Medicaid.

Some steps need to be taken for it come to fruition, though. The bill directs the Cabinet for Health and Family Services to submit a waiver application to the federal government requesting approval to establish the mandatory program. The cabinet would have to design the program and it would need to go through comment periods on both federal and state levels.

Rep. Andy Barr, the Republican representing Lexington, recently expressed support for such a work requirement.

“Work-capable adults need to get off the taxpayer rolls and then they need to get into private health insurance and private employment,” Barr told a Fox News host late last month. “This is what (Treasury) Secretary (Scott) Bessent and President Trump are talking about when they say ‘Reprivatize the economy.’ This is good for people who are currently on Medicaid.”

Barr is considering a run for the U.S. Senate in 2026, when Sen. Mitch McConnell will not seek reelection.

The consensus is the Trump administration, which has backed a Republican plan to cut $885 billion in overall Medicaid funding, will approve the program.

Dustin Pugel, policy director at the Kentucky Center for Economic Policy, said that “it’s generally safe to say” they will.

“A lot of it just depends on how the Beshear administration sets it up. It is possible they’d want it to be more restrictive or worried about litigation and they’d want to tighten up,” Pugel said.

Medicaid Oversight Board

The idea of a new Medicaid Oversight and Advisory Board consisting of members of the legislature was introduced early in this year’s session via Middlesboro GOP Rep. Adam Bowling’s House Bill 9.

Eight of the 10 voting members of the board will be appointed by Republican leadership while the remaining two will be appointed by Democratic House and Senate leaders.

McDaniel compared the approach that the legislature is taking with Medicaid to the state pension funding issue. A similar board was formed for the state’s ailing pension systems in the mid-2010s; though still underfunded, the state pension fund has improved significantly since then.

“It will start out as adversarial, just like Public Pension Oversight Board did. And you know what happened over the past seven or eight years as we’ve had public pension oversight board?” McDaniel said.

“We went from being adversaries with the pension systems to collaborating — collaborating on how we make them stable, collaborating on how we ensure that they fulfill their promises, collaborating and ensuring that we’re effectively investing the dollars of the taxpayers of the Commonwealth.”

Another major change is the limitation on Beshear from making eligibility, coverage, or benefits changes without explicit authorization from the General Assembly. Such a statute would have blocked Beshear from expanding Medicaid to cover vision, dental and hearing services, as he did in late 2022.

Early in his first term, Beshear rescinded a previous work requirement put in place by former Republican governor Matt Bevin. That requirement, however, had been struck down by a federal judge.

The governor and his father, former Gov. Steve Beshear, have also championed the expansion of Medicaid the elder Beshear oversaw after the passage of the Affordable Care Act.

As a result of the expansion, the percentage of uninsured Kentuckians dropped from 14% to roughly 5%.

Behavioral health costs

A big chunk of the bill appears aimed at tamping down the cost of behavioral health services, including substance abuse disorder treatment.

It requires the Department for Medicaid Services to report to the legislature on any service where the utilization rate or expenditures increase by more than 10% over the previous calendar year. It also requires the Cabinet for Health and Family Services to develop a behavioral health and substance use disorder treatment services scorecard for services and providers.

Kentucky uses Medicaid to cover substance use disorders at a particularly high rate.

Led by the prodigious provider Addiction Recovery Care, Kentucky has the highest number of residential treatment beds per capita in the country. Left unsaid in the committee rooms and floor speeches was the fact that Addiction Recovery Care is the subject of a Federal Bureau of Investigation probe into potential fraud.

“The pendulum has begun to swing to where not only do we have enough treatment options… there’s a concern that ‘options,’ in some cases, have turned to abuse,” McDaniel said.

McDaniel also noted that all nine of the most commonly used substance use disorder treatment codes — which are used to bill Medicaid — are covered by Kentucky’s program. That’s not the case for any of Kentucky’s neighbors, he said.

In addition, the state must develop a scorecard for behavioral health and substance use disorder treatment providers, which will be used by all Medicaid managed care organizations.

House Bill 695 also reinstates prior authorization requirements for Medicaid recipients utilizing behavioral health services — meaning that providers need approval from insurers to provide care — that were in place on January 1, 2020.

Of note, the Cabinet for Health and Family Services sent a letter to providers on Friday, the same day the bill was passed, reinstating prior authorization for Medicaid recipients for various behavioral health services. Those services include “psychoeducation” exceeding 125 hours per year and targeted case management exceeding three months, among other services.

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