Medicaid work requirement rule adds significant wrinkles to program eligibility criteria

For state agencies and potentially healthcare providers, CMS’s regulatory guidance on implementing the Medicaid work requirement imposes responsibilities that go beyond language seen in the underlying statute.

CMS published an interim final rule with comment period late Monday, just barely meeting the June 1 deadline established in the 2025 reconciliation law known as the One Big Beautiful Bill Act (OBBBA).

The OBBBA included various provisions to rein in Medicaid spending, with the work requirement being the most prominent. As stipulated, all 40 Medicaid expansion states (plus Washington, D.C.) must apply work and community engagement requirements starting in 2027, unless they’re granted an extension.

Most adults in the expansion population will be eligible for Medicaid only if they engage in designated activities (work, education, volunteering, job training) for at least 80 hours per month.

States that make a good-faith effort to implement the requirement by Jan. 1, 2027, can request an extension if needed. In making such a request, states must describe the actions they have taken toward implementation, the barriers they have encountered, a detailed implementation plan, and any exigent circumstances (e.g., natural disasters).

Extensions initially will be limited to six months or less, CMS indicated in the rule, but further extensions are possible. The longest any extension can last is through 2028.

Indicating the tough criteria, CMS projects in the rule that only two states will be granted an extension out of roughly 10 that apply for one.

CMS projects coverage loss in the millions

In tandem with the work requirement is a mandate for states to conduct eligibility checks of beneficiaries in the expansion population every six months, up from yearly. Taken together, the work requirement and the increased screening are projected to decrease enrollment by 5.9 million as of 2034, according to a 2025 estimate by the Congressional Budget Office (CBO).

CMS included its own projections in the new rule, saying the work requirement will cause enrollment to drop by 2.3 million in FY27 and between 3.1 million and 3.3 million as of FY28 and subsequent years, relative to a baseline. The figures are based on a 15% enrollment decline among adult beneficiaries.

In the Medicaid expansion population, 26% will be exempted because they either are in an excluded category or qualify for a short-term hardship exception, CMS projects.

Roughly 12% of those subject to the requirement will fall off the rolls due to noncompliance, the agency said, citing survey data and inferences drawn about engagement in qualifying activities.

Among those who meet the work requirement or qualify for an exemption, 7% nonetheless will lose coverage because of administrative or procedural issues, according to the interim final rule. Such issues might include an inability or a failure to respond to documentation requests.

As a result of the coverage loss, Medicaid expenditures over a decade will be reduced by $350.3 billion in federal outlays and $41.6 billion in state spending, per the projections.

HHS’s Office of the Assistant Secretary for Planning and Evaluation released a new report examining the prospective impact of the work requirement. The report cites the potential for improved employment rates and wages, as long as the requirement is well-designed and smoothly implemented.

Medical frailty exemptions may create provider documentation pressure

Major exemptions from the work requirement include American Indian/Alaska Native status, pregnancy/postpartum status, parent or guardian status (for children 13 and younger or a dependent with a disability), and medical frailty or special needs.

Medical frailty likely will be the most complicated exemption for the healthcare system to navigate. CMS said beneficiaries may meet the definition of medically frail if they are blind or disabled, or have:

• A substance-use disorder
• A disabling mental disorder
• Physical, intellectual or developmental disabilities that impair activities of daily living
• A serious or complex medical condition

For the last category, CMS listed medical conditions that could qualify as serious or complex. Examples include cancer, end-stage renal disease, HIV/AIDS, sickle cell disease and COPD.

However, in language that goes beyond the OBBBA, any such condition in itself will not qualify a beneficiary for an exemption. The beneficiary must demonstrate that the condition results in functional impairment, meaning providers could be asked to document impairment in addition to diagnoses.

Extensive documentation requirements potentially will wait until 2028 because beneficiary self-attestation of work status and exemption eligibility is allowed through 2027 and one time per beneficiary in 2028. After that, states will have to obtain documentation from beneficiaries for whom the state does not have the requisite data on file. Attestation options are more restricted for medical frailty, with self-reporting allowed only one time per enrollee.

CMS is hoping to mitigate the challenges by funding $600 million in Medicaid data infrastructure improvements to be implemented by 2028, with strict guardrails for participating vendors, agency officials said during a media call.

Conditions that likely won’t qualify for the medically frail exemption include asthma, hypertension, obesity, anemia and diabetes, according to the interim final rule, which says such conditions generally do not keep people from working.

State decisions on hardship exceptions

The American Medical Association encouraged providers to weigh in on state implementation of hardship exceptions for people who otherwise would be subject to the work requirement.

Per the OBBBA, states can make exceptions available to people in any month when they receive inpatient hospital services, skilled nursing facility services, intermediate care facility services for individuals with intellectual disabilities, or inpatient psychiatric hospital services.

Other exceptions are possible in a given month if a beneficiary:

• Must travel outside their community for a certain amount of time to receive medical services for a serious or complex condition, or accompany a family member receiving such care
• Lives in a county where a federal emergency or disaster has been declared or the unemployment rate exceeds 8%

States are not bound to adopt all those exceptions, and recent reporting by KFF identified a small number of states that plan to bypass one or more of them.

In addition, the interim final rule appears to have tightened the disaster-related exception by specifying that the emergency or disaster must prevent people from working.