Key Takeaways:
- New mandatory work requirements take effect July 31, 2026. CMS has published an Interim Final Rule implementing the requirement in H.R. 1 that certain Medicaid beneficiaries who live in states that expanded Medicaid under the Affordable Care Act and who are ages 19–64 demonstrate 80 hours per month of work, community service, education, or equivalent activity as a condition of eligibility. The rule applies to all 41 expansion states, including the District of Columbia, with implementation required by January 1, 2027. CMS projects the requirement will reduce Medicaid enrollment by approximately 2.3 million individuals in FY 2027.
- The medical frailty exemption is more restrictive than the statute. Although Congress identified five categories of conditions that qualify an individual as “medically frail,” CMS has imposed an additional functional capacity requirement: individuals must demonstrate that their condition “significantly impairs” their ability to perform the 80-hours of required monthly work activities. This interpretive overlay is expected to be a focal point of legal challenges and public comments.
- States face significant implementation burdens and tight timelines. States must overhaul eligibility systems, build new verification infrastructure, and develop compliant notice and reporting processes at an estimated average cost of $15 million per state. States unable to meet the January 2027 deadline may seek a limited good faith effort exemption.
- The public comment period closes July 31, 2026, providing interested parties an opportunity to address the medical frailty definition, verification procedures, exemption criteria and other issues with the rule.
Introduction
On June 1, 2026 (the agency’s statutory deadline), the Centers for Medicare & Medicaid Services (“CMS”) published an Interim Final Rule with Comment Period (“IFC”) implementing a new statutory requirement for certain Medicaid beneficiaries to demonstrate that they are engaged in work or work-related activities as a condition of their eligibility. The rule implements section 1902(xx) of the Social Security Act (the Act), added by section 71119 of the Working Families Tax Cut (“WFTC”) legislation. This alert summarizes the key provisions of the IFC, identifies interpretive issues, and outlines implications for states and stakeholders.
CMS will accept public comments on this rule through July 31, 2026. However, because Congress expressly authorized CMS to promulgate this rule as IFC—allowing the agency to forgo Notice-and-Comment Rulemaking—this rule will take effect on July 31, 2026 without CMS issuing a subsequent final rule.
The rule represents the biggest change to Medicaid eligibility policy since the Affordable Care Act. In the IFC, CMS projects the requirement will reduce Medicaid enrollment by approximately 2.3 million individuals in FY 2027. The Congressional Budget Office separately estimates that coverage losses from Medicaid work requirements will increase the number of uninsured individuals in the United States by 5.3 million by 2034.
Prior Attempts at Work Requirements
Work and community engagement requirements have not historically been a condition of Medicaid eligibility. That changed during the first Trump Administration, when CMS began approving demonstration projects, authorized under section 1115 of the Social Security Act, that allowed states to voluntarily implement work requirements. Between 2018 and 2020, CMS approved such demonstrations in 13 states, though litigation and subsequent policy reversals limited implementation.
Arkansas became the first state to fully implement its work requirement in 2018. Over the first few months of implementation, approximately 18,000 beneficiaries in the state were disenrolled from Medicaid. Although 95% of adults subject to the requirement were either already working or should have qualified for an exemption, a pervasive lack of awareness about reporting obligations prevented eligible beneficiaries from demonstrating compliance. Federal courts ultimately suspended the requirement in Arkansas, as well as in several other states, and the Biden Administration rescinded the remaining waivers.
Georgia is the only state that continues to operate a work requirement program under demonstration authority today. Georgia, which has not implemented the Medicaid expansion, tied meeting the work requirement to new coverage for individuals who would have been eligible under the adult group had Georgia adopted Medicaid expansion. To date, Georgia has enrolled only 3,500 people since July 2023. (Had Georgia implemented Medicaid expansion, an estimated 300,000 people would have been eligible.) The effort has cost the state $26 million, with the vast majority funding administrative and consulting expenses.
Key Provisions
The IFC establishes a comprehensive regulatory framework implementing Medicaid’s new statutory work requirement. Unlike the prior demonstration approach, this framework is mandatory for all expansion states and imposes significantly greater administrative requirements. The requirement applies in states that expanded Medicaid to cover the “adult group,” which consists of non-pregnant individuals ages 19–64 with incomes up to 133% of the federal poverty level. States have achieved coverage for the adult group through their state plans or section 1115 demonstrations.
To date, 41 states including the District of Columbia have expanded Medicaid and will be required to implement the new requirement. The requirement does not apply to the U.S. territories.
Applicable Individuals. The work engagement requirement applies to “applicable individuals,” generally individuals in the adult group who are enrolled in or eligible for the expanded State plan or section 1115 demonstrations.
Nine categories of “specified excluded individuals” are entirely exempt from the requirement (i.e., community engagement is not a condition of their eligibility), although many of these excluded individuals may have to prove that they qualify for an exemption:
- Former foster care youth;
- American Indians and Alaska Natives;
- Parents, guardians, caretaker relatives, or family caregivers of a dependent child 13 years of age or under or a disabled individual;
- Veterans with a total (100%) disability rating;
- Individuals who are medically frail or otherwise have special medical needs;
- Individuals who meet the TANF work requirements or are members of a household receiving SNAP benefits and are not exempt from the SNAP work requirements;
- Participants in a drug addiction or alcoholic treatment and rehabilitation program;
- Inmates of a public institution; and
- Pregnant individuals or those entitled to postpartum coverage.
CMS estimates approximately 24% of applicable individuals will qualify for a specified exclusion.
Community Engagement. An applicable individual demonstrates community engagement in a given month by meeting one or more of the following conditions:
- Working not less than 80 hours;
- Completing not less than 80 hours of community service;
- Participating in a work program for not less than 80 hours;
- Enrolling in an educational program at least half-time;
- Engaging in any combination of the foregoing for not less than a total of 80 hours; or
- Having monthly income equivalent to the federal minimum wage multiplied by 80 hours.
The IFC defines “work” broadly to include work in exchange for money, goods, or services, and “unpaid work other than community service.” Community service is defined as “unpaid work with a structured program completed for the direct benefit of the community.”
Reporting, Documentation, and Verification. States must verify compliance at application (for a state-specified look-back period of one to three months preceding the application month) and at renewal (for one or more months during the period since the most recent eligibility determination). The IFC reiterates the states’ statutory requirement to conduct ex parte verification—maximizing reliance on electronic data sources such as payroll data, adjudicated claims, and encounter data—before requesting additional information from the individual.
Through December 31, 2027, states may accept self-attestation with statements under penalty of perjury to verify work and most health-related exemptions when no reliable electronic information is available. Beginning January 1, 2028, states must generally require documentation when reasonably available, but they must still accept self-attestation in the absence of such documentation.
If a state is unable to verify compliance, it must issue a notice of noncompliance and provide the individual 30 calendar days to make a satisfactory showing; failure to do so would result in denial or disenrollment.
Moratorium-Related Provisions. Congress imposed a moratorium through September 30, 2034, on regulations amended by the 2024 Eligibility and Enrollment Final Rule. Many regulations amended by that 2024 rule governed renewals, application processing, and timeliness standards. Because these regulations are necessary to administer the community engagement requirement, this IFC restores the prior version of the Code of Federal Regulations for the affected provisions until October 1, 2034.
This technical but significant step restores prior eligibility and enrollment regulations to provide the regulatory infrastructure needed to administer the new work requirements.
The Medical Frailty Exemption
The medical frailty exclusion is among the most consequential and controversial elements of this rulemaking.
The statute provides five pathways to qualify as medically frail: (1) by being blind or disabled (as defined in the Supplemental Security Income benefits law at section 1614 of the Social Security Act); (2) having a substance use disorder; (3) having a disabling mental disorder; (4) having a physical, intellectual, or developmental disability that significantly impairs activities of daily living; or (5) having a serious or complex medical condition. Under the plain text of section 1902(xx)(9)(A)(ii)(V) of the Act, an individual who meets any one of these categories is “medically frail or otherwise has special medical needs” and is exempt from community engagement.
CMS, however, has added a functional capacity overlay. Under the IFC, an individual qualifies as medically frail only if their condition “significantly impairs the individual’s ability to comply with the community engagement requirement.” This means that the individual would have to demonstrate that their condition prevents them from performing 80 hours per month of qualifying activities. This additional showing is required even for individuals who meet one of the five statutory categories.
Challengers to the rule will likely argue that the best reading of the statute is that the categories are illustrative examples of people who must qualify for the medical frailty exemption—not conditions requiring an additional functional impairment test. CMS justifies its approach in the rule by arguing that a diagnosis-only standard “would risk sweeping in individuals whose conditions do not significantly impair their functional capacity.” Certain patient-focused organizations counter that CMS has effectively rewritten the statute to impose a work-capacity test that Congress did not authorize.
For example, the American Cancer Society Cancer Action Network criticized the rule, stating that it “makes it more difficult for people who are medically frail—including people with cancer—to be exempt from the work requirements as Congress intended.” The organization’s president further noted that cancer patients and survivors would need to go through an onerous process of proving they cannot work.
State Implementation & Outlook
The statute requires and the IFC affirms that implementation must begin no later than January 1, 2027. States must overhaul their Medicaid Enterprise Systems, pass authorizing legislation where required, build verification infrastructure connecting to multiple data sources, and develop new application and outreach materials. CMS estimates average systems costs of approximately $15 million per state, totaling $660 million nationally. However, this figure does not include ongoing administrative costs for processing verifications, issuing notices, and handling appeals.
States that cannot meet the January 2027 deadline may request a good faith effort exemption, but such exemptions expire no later than December 31, 2028, and cannot be renewed. CMS will evaluate exemption requests based on whether states have a “detailed work plan and have been diligently making demonstrable progress on that work plan throughout 2026.”
As CMS began signaling its approach six months before publication through informal guidance and presentations, many states have already submitted Advanced Planning Documents for the necessary system changes. Documentation of such “demonstrable progress” may bolster a state's case for the good faith effort exemption.
Looking Ahead
CMS determined this to be a “significant regulatory action” with costs potentially exceeding $100 million in at least one year. The agency projects a combined disenrollment rate of approximately 15% of total adult group enrollment. However, CMS anticipates that up to 4.4 million people will meet the requirement, which the agency projects will yield improved economic and health outcomes for participants.
The open comment period closes July 31, 2026, providing an opportunity for substantive engagement with CMS. Stakeholders may wish to focus comments on the medical frailty definition, verification procedures, and the good faith effort exemption criteria.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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