CMS Issues Interim Final Rule Implementing Medicaid Community Engagement Requirements

The Centers for Medicare & Medicaid Services (CMS) on June 1, 2026, issued an interim final rule implementing the Medicaid community engagement (work requirement) provisions enacted in H.R. 1. Effective January 1, 2027, certain Medicaid beneficiaries ages 19 to 64 must complete at least 80 hours per month of qualifying work, education, job training, volunteer service or similar activities as a condition of eligibility, unless they qualify for a statutory exemption. The law provides exemptions for several categories of individuals, including pregnant and postpartum women, Tribal members, veterans with total disability ratings, medically frail individuals, certain caregivers, and individuals already satisfying Supplemental Nutrition Assistance Program or Temporary Assistance for Needy Families work requirements. The interim final rule establishes the operational framework states must use to administer the requirements.

The agency estimates that the policy will result in approximately 2.3 million individuals losing Medicaid coverage in 2027 and roughly 3.2 million annually thereafter, which is lower than the Congressional Budget Office's estimate of approximately 5 million annual disenrollments after 2028. CMS emphasizes that actual enrollment effects will depend heavily on state implementation decisions that have not yet been finalized. Overall, CMS projects a 15 percent disenrollment rate, assuming 9 percent of enrollees lose coverage for failing to satisfy community engagement requirements and an additional 6 percent lose coverage because of administrative or paperwork-related barriers.

However, there is also research contradicting government projections that the mandate will actually improve employment among beneficiaries. Research evaluating Arkansas' prior Medicaid work requirement found substantial coverage losses without measurable increases in employment, raising questions about whether similar requirements will achieve their stated workforce participation objectives.

Comments on the interim final rule are due July 31, 2026. Because this is an interim final rule, CMS is not required to substantially revise the policy before implementation.

See the CMS fact sheet for more details, along with the interim final rule.

CMS Clarifies Medical Frailty Standards

The rule provides additional guidance on how states must identify individuals who qualify for the statutory medical frailty exemption. Though states retain discretion over operational and verification processes, they may not expand the definition beyond the five categories established by the statute. CMS interprets the statutory medical frailty exemption to require not only the presence of a qualifying condition, but also that the condition significantly impairs the individual's ability to satisfy the 80-hour monthly community engagement requirement. This effectively narrows the exemption by tying medical frailty to functional limitations rather than diagnosis alone.

The five qualifying categories are:

1. blindness or disability
2. substance use disorder (SUD)
3. disabling mental disorders
4. physical, intellectual or developmental disabilities
5. serious or complex medical conditions

The agency further clarifies that qualifying mental health conditions should generally be identified using established clinical frameworks such as DSM-5 or ICD-10.

Self-Attestation Permitted, But Only Temporarily

If a state cannot automatically verify medical frailty through existing Medicaid claims or administrative data, individuals may self-declare that they meet the medical frailty criteria. However, CMS limits the use of self-attestation. Beneficiaries may rely on self-declaration only through January 2028 and generally only once during a continuous enrollment period. At the next renewal, individuals must provide supporting documentation, such as provider certification or medical records.

Before permitting self-attestation, states must first undertake specified verification efforts, including ex parte reviews and screening processes designed to identify qualifying conditions through available data sources.

Though CMS permits self-attestation when claims or administrative data are unavailable, the agency has clearly signaled a preference for objective verification and has limited reliance on self-attestation over time. Beneficiaries may generally rely on self-declaration only once during a continuous enrollment period, after which supporting documentation will be required. This approach attempts to balance beneficiary access concerns with program integrity objectives but is likely to remain a point of debate during the comment period.

Role of Medicaid Managed Care Organizations

The rule permits Medicaid managed care organizations (MCOs) to assist states with implementation through outreach, education, referrals to qualifying work programs and the sharing of information regarding enrollees' health conditions, including medically frail status and participation in SUD treatment programs. However, MCOs may not make eligibility or compliance determinations.

CMS also notes that though Medicaid payments generally may not be used to finance community engagement outreach activities, certain qualifying outreach efforts could potentially be treated as value-added services and included in MCO medical loss ratio calculations.

Notable Exclusions and Clarifications

• SUD Exception: Individuals with SUD generally qualify as medically frail and are exempt from community engagement requirements. CMS indicates that individuals who have maintained recovery for five or more years may no longer qualify for the exemption and could be subject to individualized review.
• Serious or Complex Medical Conditions: CMS provides examples of conditions it would generally expect to qualify, including cancer, end-stage renal disease, HIV/AIDS, significant heart disease, multiple sclerosis and Parkinson's disease. Conditions that generally would not qualify, absent additional severity, include diabetes, asthma, hypertension, ADHD, obesity and anemia. CMS notes that severity and functional impairment remain important considerations and that individuals with severe manifestations of these conditions could still qualify.
• State ICD-10 Code Lists: States must develop auditable, regularly updated ICD-10 code lists to identify beneficiaries who are potentially medically frail. These lists must be consistent with CMS definitions and evolve as clinical standards and treatment approaches change. Developing and maintaining these systems could present significant operational challenges.

Administrative and Operational Challenges

Beyond the policy changes themselves, the rule places substantial new operational responsibilities on states. States will need to develop and maintain auditable ICD-10 code lists, establish verification and ex parte review processes, create beneficiary notification and appeals procedures, and coordinate data exchanges with managed care plans and other entities. Though CMS emphasizes flexibility in implementation, several stakeholders have raised concerns about whether states can build and operationalize these systems before the January 1, 2027, effective date, particularly given that the rule was released only seven months before implementation.

State Implementation

The release of the interim final rule only seven months before implementation raises questions about whether states can build compliant eligibility, verification and reporting systems in time. That said, several states are already moving forward:

• Nebraska (Effective May 1, 2026). Nebraska became the first state to implement community engagement requirements and has already developed a nearly 300-page index of diagnosis and procedure codes used to identify medically frail individuals. The state automatically exempts beneficiaries when claims data support eligibility and allows self-declaration when claims information is unavailable. Nebraska may need to revise portions of its approach to align with CMS' newly issued standards, particularly regarding qualifying conditions and code lists.
• Montana (July 1, 2026), Iowa (December 1, 2026) and Arkansas (July 1, 2026, with Enforcement Delayed Until January 2027). These states are launching programs before January 2027 and now have additional guidance to incorporate into their implementation plans.

Outlook

The interim final rule provides substantially more detail regarding medical frailty exemptions, verification standards and state implementation responsibilities. However, significant policy and operational questions remain. Stakeholders on both sides of the debate are likely to focus comments on CMS' treatment of self-attestation, documentation requirements, the definition of "medical frailty" and practical challenges states will face in implementing compliant systems before January 1, 2027.