Medicaid work requirements go into effect across the country on January 1, 2027. Work requirements have previously been applied to cash welfare and food assistance programs. But with the exception of a couple of demonstration programs, they have not previously been applied to Medicaid, a much larger program providing health insurance coverage to approximately one-fifth of the U.S. population, at a cost of $932 billion in 2024.
As states prepare to implement the new requirements, debate has ensued over how effectively they will be administered and what impacts they will have on Medicaid recipients. Proponents emphasize the potential for increased employment, transitions into employer-provided coverage and reduced government expenditures. Opponents emphasize the potential loss of health insurance for those deemed noncompliant, as well as administrative burdens that could disqualify individuals from Medicaid coverage even if they are working or should otherwise be exempt.
One unexplored issue is a loophole that allows individuals to satisfy the work requirement if their household has at least $580 of monthly income—which includes gross gambling winnings (i.e., the profits from winning bets or gambling sessions) without netting out losses. In most states, individuals can maintain Medicaid coverage by showing $580 in gross gambling winnings once every six months. Individuals averse to the risk of losing money may still be able to exploit the loophole, by taking positions on both sides of a single bet that guarantees both $580 in winnings and a somewhat larger loss, satisfying the work requirement without any financial risk apart from covering modest bookmaker fees.
As background, the new Medicaid work requirement will generally apply to non-disabled adults aged 19-64 covered through Medicaid expansion or certain state demonstration projects. Pregnant women, parents with a child under age 14, caretakers of individuals with disabilities, and various other populations are excluded.
Congress allowed each state to determine how many months of work to require during every six-month (or less) recertification period. According to a March 2026 survey conducted by KFF and Georgetown University (see their Appendix Table 1), 34 out of 37 states that had already made a plan decided to require the minimum one month out of every six. Congress also allowed each state to determine how many consecutive months of work to require for new Medicaid applicants: 36 out of the 38 states that had already made a plan chose the minimum one month while the other two states chose the maximum three months.
To satisfy the requirement in a given month, a recipient must work, train for work, or engage in community service for at least 80 hours, or be enrolled in school at least half-time. In an apparent effort to reduce compliance burden, Congress alternatively allowed individuals to satisfy the work requirement by demonstrating income of at least $580, calculated as $7.25, the federal minimum wage, times 80 hours. In its interim final rule implementing the law, the Centers for Medicare and Medicaid Services (CMS) decided to allow individuals to meet the income threshold on the basis of their household’s Modified Adjusted Gross Income (MAGI), the income definition that is already specified in statute for purposes of Medicaid eligibility determination.
However, the seemingly sensible choice to consistently use MAGI as the income definition for both eligibility and work requirement compliance creates a loophole. Aside from adding a few income sources excluded from AGI—untaxed foreign income, tax-exempt interest, and non-taxable Social Security benefits—MAGI is equal to Adjusted Gross Income (AGI) as defined for purposes of federal individual income taxation. As CMS recognized in its rule, AGI is broader than earnings. For example, it includes unearned income sources like unemployment insurance and alimony payments for divorces finalized before 2019.
One particularly problematic unearned income source included in AGI is gross gambling winnings. Gross gambling winnings represent the profit on winning wagers or gambling sessions above and beyond the original returned stakes. Recreational gamblers could meet the work requirement in a given month by gambling enough to make $580 in gross winnings. While 90% of gambling losses up to the amount of winnings can be claimed as a deduction for those who itemize on their federal tax return, the deduction does not reduce AGI. As long as gross winnings total $580, then regardless of the amount of losses AGI will be $580 as a result of gambling activities, aside from any other income sources. Individuals with non-gambling sources of income could use a lower amount of gross gambling winnings to reach the $580 MAGI threshold.
While it is difficult to determine how many Medicaid recipients subject to the work requirement gamble, 53% of all American adults reported gambling in the past 12 months, according to a 2026 Gallup web-based poll, which includes state lottery tickets, casinos, and other activities. Meanwhile, 21% of U.S. adults reported gambling on sports. Of course, many of these individuals likely place relatively modest wagers, and gambling prevalence may differ among Medicaid recipients.
Nonetheless, it is concerning that some Medicaid recipients will be able to meet the work requirement by gambling, especially to the extent that it encourages more people to gamble or current gamblers to gamble more or concentrate their gambling activity in a single month. For example, someone who currently gambles a couple hundred dollars per month could choose to increase activity one month until they accumulate $580 in MAGI from gross gambling winnings and any other countable income.
However, the problem is broader than rewarding and encouraging gambling. In theory, any Medicaid recipient could use the same loophole to comply with the work requirement without exposing themselves to any risk of significant net gambling losses. They could simply take opposing wagers on the same event with two possible outcomes, with the amounts set such that they win $580 on the basis of the winning outcome and lose $580 (or likely somewhat more to cover the bookmaker’s take) on the basis of the losing outcome. As long as the two bets are not combined into a single “session” for purposes of calculating AGI, this ensures $580 in gross winnings and little net loss.
As an example, the Chicago Bears are favored to beat the Minnesota Vikings by 5.5 points when they face off on Sunday, September 20 (as of the time of writing). Assuming both sides are available at -110 odds (meaning putting down $110 to receive $100 in profit when winning), betting $638 on the Bears to cover the spread will return a $580 profit if they succeed, and betting $638 on the Bears not to cover the spread will return a $580 profit if they do not succeed. The individual betting on both sides puts up a total of $1,276, and receives $1,218 back regardless of whether the Bears cover. Because the sportsbook takes a profit that is incorporated in the betting lines, the individual loses $58. The benefit is that they can claim $580 of gross winnings for purposes of their MAGI, satisfying the Medicaid work requirement for the month, which in most states ensures compliance for a full six-month recertification period.
For purposes of counting the $580 gross winnings as AGI, the key is that both bets are not included in a single session and netted together such that no gambling income would be recognized. For example, the Internal Revenue Service (IRS) allows taxpayers to aggregate all slot machine pulls in a given casino visit into a single amount of net winnings (e.g., ten pulls that each cost $1 where the last pull pays out $10 could be aggregated into $0 of gross gambling winnings).
However, the IRS has not offered public guidance that carries over the same “session” treatment to sports gambling. The state of Michigan has explicitly stated that taxpayers cannot use the session method for sports gambling, although that does not necessarily apply to AGI for purposes of federal taxation. Bryan Camp, a law professor at Texas Tech University, argues that revised language in the One Big Beautiful Bill Act could in theory support a session-based approach for all gambling at a given establishment throughout the year. But even if this were the case, an individual seeking to ensure $580 of gross winnings could take one side of the bet (i.e., that the Bears cover the spread) with one sportsbook and the other side of the bet (i.e., that the Bears do not cover the spread) with a different sportsbook, presumably generating two different sessions.
Ultimately, state Medicaid agencies will be required to determine whether gambling winnings of this type would count as MAGI. But given the lack of explicit IRS guidance to allow the session approach for sports gambling, and the lack of precedent for allowing session gambling across multiple establishments, there seems to be a strong case for Medicaid recipients to count the $580 as gross winnings, especially if the bets are made at two different sportsbooks.
The only capital requirement for individuals to exploit the gambling loophole is $1,276 to place the two bets. But because there is no chance of losing money—aside from the $58 captured by the sportsbooks—and because the remaining amount can be repaid once the bet is resolved and winnings are paid, it may not be prohibitively difficult or particularly expensive to borrow the necessary funds.
In theory, the other potential cost is that the individual must include the gross winnings in their AGI for purposes of their federal and state income tax filings. However, Medicaid recipients, especially those unable to meet the work requirement based on work hours or other sources of income, are likely to have annual incomes including the gambling winnings below the standard deduction ($16,100 for single individuals and $32,200 for married couples filing jointly in 2026) and thus face no additional federal income tax by achieving gross gambling winnings of $580 once every six months.
Whether Medicaid recipients will take advantage of this loophole is unclear. Even if they understand the premise, many will likely prefer not to engage in gambling or may believe they will meet the requirement in other ways. But the possibility that a law intended to encourage employment could instead encourage gambling activity by some Medicaid recipients, either by taking positions on both sides of a single bet or by engaging in a series of risky gambles in a month, is a serious concern.
Lawmakers should close the gambling loophole by excluding gambling winnings when calculating income for purposes of demonstrating compliance with the Medicaid work requirement. The change may require an act of Congress. In its interim final rule, CMS interpreted the existing statute to say that income must be defined in the same way for administering work requirements as it is defined for Medicaid eligibility. Since gross gambling winnings, as a component of MAGI, are statutorily required to be counted for purposes of eligibility, CMS by its reasoning cannot exclude gross gambling winnings for purposes of the work requirement. But Congress could change federal law to explicitly allow for these different income definitions.
Regardless of one’s views of work requirements, there should be broad support for preventing them from encouraging gambling among Medicaid recipients.
