CMS allows states to delay enforcement of Medicaid work requirements until July

In a step that likely will reduce Medicaid coverage losses during the first half of 2027, CMS announced new leeway for states implementing the work requirement.

Although the requirement will take effect as scheduled Jan. 1 in 43 states and Washington, D.C., states have the option to institute a hold-harmless period through the first six months of the year, according to a Nov. 13 notice to Medicaid agencies from Dan Brillman, director of CMS’s Center for Medicaid and CHIP Services.

Through June 30, states are authorized to refrain from denying Medicaid applications or disenrolling beneficiaries for failing to fulfill the work requirement (also known as the community engagement requirement). States can adopt a shorter hold-harmless period or choose not to use the flexibility.

States taking up the hold-harmless option must continue determining whether applicants and beneficiaries meet the work requirement or qualify for an exemption or a hardship exception. The flexibility does not apply to other Medicaid eligibility criteria (e.g., income, age).

Any state wishing to use the flexibility is supposed to notify CMS by Dec. 11.

“The optional hold-harmless transition period gives states the ability to improve and refine their systems and processes before enforcement begins, supporting long-term success of the work requirement,” according to a CMS news release. “It will also provide states the opportunity to learn from the early months of implementation to identify and address workforce training needs and improve the beneficiary experience.”

Why the Jan. 1 implementation deadline still matters

CMS cannot change the Jan. 1 statutory deadline for the work requirement to begin, as established in the One Big Beautiful Bill Act (also referred to as the Working Families Tax Cut legislation).

The additional time is meant to help states test eligibility systems, improve automation, train staff and correct implementation problems before coverage penalties take effect.

“We have heard directly from states about their implementation timelines, impediments to successful launches at scale, policy updates, operations and overall readiness,” Brillman wrote. “We are aware that leading up to Jan. 1, 2027, and continuing thereafter, states are and will be actively identifying and addressing deficiencies, such as updating eligibility determination logics and system-generated notices, and mitigating challenges to maintain compliance with timely eligibility operations, which may arise when they first implement community engagement and other Medicaid eligibility and enrollment requirements,” Brillman wrote.

The American Medical Association said all states should take advantage of the six-month window.

“States must have sufficient time to update their eligibility systems, adjust administrative processes, and ensure they can accurately identify individuals who are subject to the requirements and those who qualify for exemptions,” AMA President Willie Underwood III, MD, said in a written statement.

“Patients should not lose this critical lifeline [Medicaid coverage] because of technical problems, administrative delays or state systems that are not ready,” Underwood added. “The additional six months will give states critical time to address these challenges and help prevent eligible patients from being improperly disenrolled.”

CMS offers additional flexibility for state implementation challenges

CMS also said it is considering other state-specific strategies to address implementation struggles. States that comply with approved mitigation strategies will be protected from certain federal enforcement steps and eligibility audit findings.

The agency did not specify additional mitigation steps in the Nov. 13 letter, but recently has recommended ways that Medicaid agencies can deploy temporary workarounds for processing related to applications and renewal forms, exemptions and hardship exceptions, and beneficiary notification, in addition to complying with state-level reporting obligations.

One issue in implementing eligibility systems arose in late October, when a Massachusetts federal court vacated CMS regulations establishing the medical-frailty exemption to the work requirement.

Provider and patient advocates cheered the decision for streamlining the exemption. The court ruling canceled CMS’s finalized definition, which would have required proving significant impairment in addition to documenting a serious illness or other qualifying condition. But the late change also meant states had to scramble to update their systems.

CMS correspondence to date has not specified whether states can apply mitigation procedures to assessing medical frailty or other exemptions. Although CMS is expected to appeal the court ruling, a footnote in the Nov. 13 letter clarifies that states do not have to work toward compliance with the vacated provisions.

A separate two-year exemption is possible

Separate from the newly issued letter, an OBBBA statutory mechanism allows CMS to grant a temporary exemption of up to two years to states encountering significant obstacles to finalizing the work requirement.

Criteria in issuing the broader exemption include good-faith efforts the state has taken toward implementation, the barriers encountered (e.g., IT development, funding), and emergencies or extraordinary circumstances that are outside the state’s control.

To date, CMS has not permitted any such exemptions. The new letter says states that have requested an exemption should submit a revised request to account for the hold-harmless option.