New CMS Medicaid Work Requirements Rule Increases Coverage Risks and Raises Legal Questions
The interim final rule adds complexity, narrows protections and increases the risk of wrongful coverage loss.
Author: Patti Boozang, Jocelyn Guyer and Kinda Serafi
Editors: Amanda Eisenberg and Kaylee O’Connor
tl;dr
The Centers for Medicare & Medicaid Services (CMS)’ interim final rule implementing Medicaid work reporting requirements makes an already difficult policy harder to implement by adding complexity for states and new paperwork burdens for people trying to get or keep Medicaid coverage.
The rule’s most consequential change is its narrower reading of the medical frailty exemption, which we believe is legally vulnerable and likely to be challenged by some states and other stakeholders.
The biggest practical risk is avoidable coverage loss: not because people stop qualifying for Medicaid, but because narrowing the medical frailty definition, along with verification rules, documentation demands and lookback requirements, make coverage harder to secure and retain.
The 80 Million Impact
When Congress enacted Medicaid work reporting requirements in H.R. 1, states already faced an enormous operational lift. They would need to redesign eligibility systems, retrain workers, rewrite applications and renewal forms, build new verification pathways, educate beneficiaries, and somehow do it all on an exceptionally short timeline. But states were not the only ones handed a new burden: Medicaid-eligible people were handed a new condition of eligibility for getting and keeping coverage, and the Congressional Budget Office (CBO) estimated that the work reporting requirement alone would cause 5.3 million people to lose coverage — primarily because people get tangled in red tape, not because they stop qualifying for Medicaid. CMS’ implementing guidance adds to that burden for both states and individuals eligible for Medicaid.
CMS’ June 1 interim final rule significantly narrows the medical frailty exemption from work reporting requirements that Congress created in H.R. 1 to protect people with serious physical and behavioral health conditions and disabilities. It creates new documentation hurdles and diverges in important ways from the preliminary direction states had been using to prepare for 2027 implementation. The practical effect is straightforward: more work for states, more administrative burden for eligible individuals, and a higher risk of coverage losses that have less to do with work and community engagement activities and more to do with a narrower definition of medical frailty and new procedural barriers. At a time when getting and keeping health coverage is already complex, the rule makes the process harder and increases the likelihood that eligible people will lose the only health coverage they can access and afford.
The Most Consequential Change
CMS narrowed the medical frailty exemption to individuals whose disability or condition significantly impairs their ability to comply with the rule’s work and community engagement requirement. That means people who have cancer, for example, must now also prove that their condition “significantly impairs” their ability to work.
This narrow reading won’t just make it burdensome for Medicaid enrollees. It’ll put the onus on states to verify not only that a person has a qualifying clinical condition but also that the condition limits their ability to work. That means more judgment calls, more documentation, more provider involvement in documentation and more opportunities for eligible people to fall through the cracks. It also means states that built implementation strategies around the statute’s plain language — and around CMS’ own preliminary guidance — will now need to rework systems, forms, training, scripts and beneficiary communications late in the process. In our view, this definitional change is on uncertain legal footing because CMS cannot use implementing guidance to narrow an exemption Congress wrote into the statute, and we expect it will be challenged by some states and other stakeholders.
CBO already estimated that millions of people would lose coverage based on H.R.1 statute, and a narrower medical frailty exemption only increases the risk of coverage loss for people with serious physical/behavioral health or disability-related needs whose lives are often least compatible with rigid and repetitive reporting requirements.
Paper Chase
The rule also confirms what experienced Medicaid officials already know: the real policy battlefield is eligibility verification. In some cases, states can rely on self-attestation when data is unavailable — at least for 2027 — though individuals will still need to provide attestation in those renewal forms or risk losing coverage if they don’t. But beginning in 2028, the framework gets tighter. If available data aren’t enough to verify compliance or exemption status, states must require documentation when it’s reasonably available; where documentation is not reasonably available, states must still obtain sufficient information from the individual. In either case, the burden falls on the individual to respond.
In theory, this seems manageable. In practice, it is where coverage gets lost. Informal caregiving, unstable work, episodic illness, transportation barriers, phone disruptions, housing insecurity, and ability to work do not fit neatly into standard data sources or documentation workflows. States can and should build humane policies for situations where data and documents do not exist or cannot reasonably be obtained — circumstances that are heightened for those with a behavioral health condition or are unhoused. The more the system depends on paper trails, the more it risks confusing compliance with eligibility.
Medical frailty is especially vulnerable to this dynamic. Beginning in 2028, individuals can self-attest medical frailty only once during an enrollment period. After that, where data are unavailable, states must seek documentation. That might have been more workable had CMS allowed claims data to do more of the heavy lifting. But by layering on the “significantly impairs ability to work” standard, CMS has made automation harder and person-by-person adjudication more likely.
In practice, that adjudication will fall on providers, who will be asked to complete administrative paperwork certifying not just that a patient has a qualifying condition, but also that the condition significantly impairs the patient’s ability to meet the work reporting requirement. It’s a standard most clinicians are not trained to assess, that has no clear analog in clinical documentation and places providers in the position of making determinations that could result in their patients losing health coverage.
This is not just a policy concern; it is an operational one. It pushes states away from technology-enabled, ex parte approaches and toward more labor-intensive manual processes.
Lookback Problem
States will need to ensure individuals seeking Medicaid coverage who are subject to work reporting requirements comply with “lookback rules,” which define eligibility based on one-to-three-month periods before application (at state option) and at least one month before redetermination (at state option). This creates a significant burden for individuals seeking a hardship exemption because they may be sick, destabilized or otherwise unable to meet the requirement in the month they apply and still be denied coverage. Consider someone who is hospitalized: Under CMS policy, if they apply for Medicaid and seek a hardship exemption from work reporting requirements, they will fail the lookback and be shut out of Medicaid for at least a month, perhaps longer. The care Congress took to include a hospitalization hardship exception is limited by the way CMS has directed states to implement in the final rule.
The Bottom Line
States must implement work requirements by Jan. 1, 2027, unless CMS approves good-faith waiver requests for states that need more time. The rule makes implementation harder by changing core policy assumptions late, increasing reliance on documentation, and complicating automated verification. CMS’ own impact analysis also appears to assume that only a small number of states will receive additional time to implement. That expectation is difficult to reconcile with the operational realities states face. At a time when CMS is taking a more aggressive posture toward program integrity and compliance in some state Medicaid programs, it is difficult to square that stance with insisting on this guidance, this timeline, and no additional operational direction for states despite the significant implementation and compliance risks involved.
States should strongly consider seeking good-faith waivers as the most responsible available tool for protecting beneficiaries while giving their agencies time to build systems that are legally and operationally compliant. The public comment period for the final rule closes on July 31. Through this process, states should document the areas in which they require additional implementation guidance from CMS and why full implementation is infeasible by Jan. 1, 2027, without unacceptable disruption, system errors, and risk of wrongful coverage loss.
The administrative record that states, providers, advocates and others build now and in the coming weeks and months will be critical in mitigating implementation problems, supporting litigation that some states and other actors may pursue, and documenting what states are doing to ensure compliant implementation and what additional guidance they need from CMS.
If this rule stands as written, the consequences will be measured in delayed applications, denied renewals, provider confusion and eligible people losing health coverage — with especially grave consequences for those with the greatest health needs.
The interim final rule does not provide a workable implementation framework. It is a policy design that increases the risk of avoidable coverage loss.
Thank you for this thoughtful analysis. It may be the first piece I've seen that openly discusses the litigation risk surrounding these regulations and raises the important question of whether CMS' interpretation of the medical frailty exemption is consistent with the statute Congress enacted, a question that will likely become increasingly important as implementation approaches.