Medicaid community engagement guidance: Key challenges ahead

Public Law 119-21, also known as the One Big Beautiful Bill Act (OBBBA), introduces significant changes to Medicaid and the Children’s Health Insurance Program (CHIP) through the Working Families Tax Cut. Starting January 1, 2027, adults aged 19 to 64 in Medicaid expansion states will be required to meet new "community engagement" standards, including work, education or community service requirements, to maintain their eligibility for the program. How ready are healthcare organizations to preserve continuity of care amid these challenges?

Centers for Medicare & Medicaid Services (CMS) recently issued guidance that aligns closely with the statute, while acknowledging the challenges that expansion states may encounter. If these requirements are not implemented effectively, it could endanger coverage for the adult populations subject to the new requirements and result in the loss of premium tax credit eligibility, increasing the stakes for both states and beneficiaries. In this client alert, we discuss the legal framework under the OBBBA, the populations affected, the verification processes, the implementation timelines and enforcement. While the CMS guidance is focused on steps that states will need to take to comply with the statutory deadlines, healthcare organizations should begin aligning systems, training their staff and adjusting care management workflows now to minimize disruption, allowing continuity of care and maintain quality metrics under the new framework.

Populations subject to the community engagement requirement

Beginning January 1, 2027, or sooner at a state’s option, states that provide coverage for the Affordable Care Act (ACA) Medicaid expansion adult group or those that cover comparable adults through certain section 1115 waivers offering minimum essential coverage (MEC), must condition eligibility for “applicable individuals” on meeting specified monthly community engagement standards.

Recognizing the challenges that states will face in implementing this requirement, the CMS has said that “[i]mplementation of community engagement requirements will necessitate system, policy and operational changes to state programs in the coming years.” According to CMS guidance, Medicaid applicants and beneficiaries considered “applicable individuals” generally include:

• Individuals eligible for or enrolled under the state plan in an adult group in a state that has expanded its Medicaid program; or
• Individuals otherwise enrolled under a section 1115 waiver providing MEC, who are at least 19 and under 65, not pregnant and not entitled to Medicare or eligible for Medicaid under another category.

What counts as “community engagement”

To meet this requirement, each month, an individual must fulfill one of the following criteria, either separately or in combination, amounting to at least 80 hours per month:

• Work at least 80 hours; complete at least 80 hours of community service; participate at least 80 hours in a “work program” as defined by SNAP statute; be enrolled at least half‑time in an educational program (including higher education or career and technical education); or any combination of the foregoing totaling 80 hours.
• Have a monthly income not less than the federal minimum wage multiplied by 80 hours (currently US$7.25 × 80 = US$580), or for seasonal workers, have an average monthly income over the preceding six months meeting the same threshold.

Stakeholders, including both providers and Medicaid managed care plans, should be considering mechanisms to assist individuals in meeting their reporting requirements. Prior efforts to implement work requirements via section 1115 waivers and the Medicaid redeterminations following COVID-19 have demonstrated that many individuals will lose coverage due to paperwork hurdles or a failure to report, as opposed to their failing to meet the requisite work requirements.

Demonstration and verification of the application and renewal

To qualify for Medicaid, applicants and beneficiaries must meet certain requirements or qualify for specific statutory exceptions or exclusions outlined in CMS guidance and relevant state regulations.

States must require applicants to demonstrate community engagement for at least one month, and up to three consecutive months if they choose, immediately preceding the application month. For beneficiaries, states must require evidence of community engagement for at least one month during each eligibility period. However, they cannot specify which months must be demonstrated or require beneficiaries to complete them consecutively if multiple months are necessary. Beginning January 1, 2027, many affected adults will experience six‑month renewal periods under a separate provision under the Working Families Tax Cut, which will align community engagement verification with these semiannual renewals.

Before requesting further documentation, states must use “reliable information” already available to them. Reliable information can include payroll data, Medicaid claims, encounter data and records from higher education or training programs. States may verify eligibility more frequently than at renewal but must adhere to the same “using reliable information first” standard.

States must notify individuals if they fail to qualify and provide 30 days from the date of receipt for the applicant or beneficiary to cure or demonstrate that the requirement does not apply. Enrolled beneficiaries will continue to receive medical assistance during this period. If the situation remains unresolved, the state is required to explore alternative eligibility pathways, send appropriate written notices, inform the applicant of fair hearing rights and, if no other basis exists, terminate or deny eligibility by the end of the month following the 30-day period.

Individuals who lose Medicaid solely due to the failure to demonstrate community engagement will also be ineligible for ACA premium tax credits on the Exchange. Therefore, stakeholders such as providers and plans should be incentivized to assist patients and MCO members with these new reporting requirements to allow for continuity of care and coverage.

Implementation timeline, outreach and good‑faith exemptions

The statutory implementation date is January 1, 2027. However, states may implement these requirements earlier through a state plan amendment or a section 1115 demonstration program. To date, no states have requested to implement this requirement at an earlier date.

States are required to conduct targeted outreach to applicable individuals, informing them about the requirements, exceptions and exclusions, how to comply, the consequences of noncompliance and how to report status changes. For those planning to implement by January 1, 2027, outreach efforts must begin no later than September 2026 (for a one‑month review period), August 2026 (for two months) or July 2026 (for three months).

The Secretary of the US Department of Health and Human Services may grant temporary good-faith-effort exemptions to delay implementation, based on demonstrated progress, encountered barriers and a credible plan with a timeline. Any such exemption must expire by December 31, 2028, and may be terminated earlier if there is noncompliance with reporting requirements or if good‑faith efforts cease.

Key takeaways for stakeholders

The statute sets firm parameters on who is subject, what qualifies as community engagement and how verification and administrative appeals must operate, while leaving states with defined options on application review periods, renewal‑month requirements, frequency of interim verification and hardship-exception designs. Many questions remain and states await more detailed guidance from CMS before the statutory deadline of June 1, 2026. The Congressional Budget Office estimates that 5.2 million Medicaid beneficiaries will lose coverage a result of the new community engagement requirement.

Providers and community organizations should anticipate increased demand for patient navigation, documentation support and continuity‑of‑care planning, especially during the notice and the subsequent 30‑day cure period. Managed care plans will not be responsible for determining compliance, but they may be encouraged to support outreach and member engagement in accordance with future guidance from CMS. Healthcare organizations serving adults covered under Medicaid expansion must be prepared for potential coverage churn resulting from verification failures, which can disrupt care and negatively affect quality metrics. Key priorities include rapid outreach during cure periods, close coordination with managed care plans and contingency processes for medications, prior authorizations and appointments.

The increasing eligibility requirements, uncertainty and provision of uncompensated care, especially among safety-net, rural and behavioral health providers, will necessitate stronger point-of-service checks and improved revenue-cycle controls. Healthcare organizations should invest in staff training regarding permissible assistance and privacy, enhance data sharing with payroll, education and service systems and develop strategies to mitigate the impact of potential disenrollment occurring in clusters.

Employers and education/training programs may experience a higher demand for verifiable participation records. Individuals who lose Medicaid solely for failing to demonstrate community engagement will be ineligible for premium tax credits, making beneficiary education and timely reporting even more critical.

The road ahead

CMS has indicated that additional guidance, including an interim final rule, will be issued to further implement these statutory requirements by June 1, 2026. Stakeholders should continue to monitor upcoming rulemaking and state‑level proposals to understand the design choices regarding verification, exceptions and outreach timelines.

The Norton Rose Fulbright healthcare team is closely following the implementation of the Medicaid community engagement provisions. If you have any questions, please feel free to contact us.