On Jun 01, 2026, the Centers for Medicare & Medicaid Services (CMS) issued an Interim Final Rule with Comment Period (IFC), meeting its statutory deadline. The rule puts into place a new requirement under federal law that certain Medicaid beneficiaries must show they are working or taking part in work-related activities in order to stay eligible for coverage. It implements section 1902(xx) of the Social Security Act, which was added through section 71119 of the Working Families Tax Cut (WFTC) legislation. This alert explains the main parts of the rule, points out areas that may raise interpretation questions, and highlights what it could mean for states and other stakeholders.

CMS will accept comments on the rule through Jul 31, 2026. Even so, the rule is set to take effect on that same date. Congress specifically allowed CMS to issue it as an Interim Final Rule, which means the agency did not have to go through the usual notice-and-comment rulemaking process before implementation and does not need to wait for a later final rule.

This is the biggest Medicaid eligibility change since the Affordable Care Act. CMS estimates the new policy will reduce Medicaid enrollment by about 2.3 million people in fiscal year 2027. The Congressional Budget Office has also projected that Medicaid work requirements could raise the number of uninsured people in the United States by 5.3 million by 2034.

Prior Attempts at Work Requirements

Work or community engagement has not traditionally been a condition for Medicaid eligibility. That changed during the first Trump Administration, when CMS began approving section 1115 demonstration waivers that allowed states to adopt work requirements on a voluntary basis. Between Jan 01, 2018 and Dec 31, 2020, CMS approved these demonstrations in 13 states, but legal challenges and later policy reversals stopped many of them from fully taking effect.

Arkansas was the first state to fully enforce a Medicaid work requirement in 2018. In just the first few months, about 18,000 beneficiaries lost coverage. What made that outcome especially striking was that around 95% of adults subject to the requirement were either already working or likely qualified for an exemption. Many still lost coverage because they did not understand the reporting rules or were unaware they had to prove compliance. Federal courts later halted Arkansas’s program, along with several others, and the Biden Administration eventually withdrew the remaining waivers.

Today, Georgia is the only state still operating a Medicaid work requirement under demonstration authority. Because Georgia did not expand Medicaid, it tied the requirement to a limited coverage pathway for people who would otherwise have qualified under the adult expansion group. Since Jul 01, 2023, only about 3,500 people have enrolled. By comparison, if Georgia had fully expanded Medicaid, an estimated 300,000 people would have been eligible. The program has cost the state $26 million so far, most of it spent on administration and consulting rather than direct coverage.

Key Provisions of the Rule

The IFC creates a full regulatory framework for Medicaid’s new statutory work requirement. Unlike the earlier waiver-based approach, this one is mandatory for all expansion states and comes with far more extensive administrative obligations. It applies in states that expanded Medicaid to cover the adult group, meaning non-pregnant individuals ages 19 to 64 with incomes up to 133% of the federal poverty level. States may have covered this group through their state plans or through section 1115 demonstrations.

So far, 41 states and the District of Columbia have expanded Medicaid and will have to implement this requirement. It does not apply to the U.S. territories.
The requirement applies to what the rule calls “applicable individuals,” generally those in the adult group who are enrolled in, or eligible for, coverage under an expanded state plan or section 1115 demonstration.

At the same time, the rule carves out nine categories of people who are excluded from the requirement altogether, though many may still need to prove that they qualify for the exemption. These include former foster youth, American Indians and Alaska Natives, parents or caregivers of a dependent child age 13 or younger or of a disabled person, veterans with a 100% disability rating, individuals who are medically frail or have special medical needs, people who already meet TANF work rules or are part of a SNAP household subject to SNAP work requirements, participants in drug or alcohol treatment programs, inmates of public institutions, and pregnant individuals or those entitled to postpartum coverage. CMS estimates that roughly 24% of otherwise applicable individuals will fall into one of these excluded categories.

Community Engagement Standard

An applicable individual can satisfy the requirement in a month by meeting at least one of several standards. They can work at least 80 hours, complete at least 80 hours of community service, participate in a work program for at least 80 hours, enroll in school at least half-time, combine qualifying activities to reach 80 total hours, or earn monthly income equal to at least 80 hours at the federal minimum wage.

The rule defines work broadly. It includes work done in exchange for money, goods, or services, as well as unpaid work that is not community service. Community service, in turn, is defined as unpaid work completed through a structured program for the direct benefit of the community.

Reporting, Documentation, and Verification

States must check compliance both when someone applies and when coverage is renewed. At the application stage, states must look back over a period of one to three months before the application month, depending on the state’s chosen timeframe. At renewal, they must verify compliance for one or more months since the last eligibility determination.

The IFC repeats the rule that states must first rely on ex parte verification whenever possible. In other words, they must use available electronic data sources, such as payroll records, claims data, and encounter data, before asking people to submit more information themselves.

Through Dec 31, 2027, states may accept self-attestation under penalty of perjury for work compliance and most health-related exemptions when reliable electronic data is not available. Starting Jan 01, 2028, states generally must require documentation when it is reasonably available, though they still have to accept self-attestation if that documentation cannot actually be obtained.

If a state cannot verify compliance, it must send a notice of noncompliance and give the individual 30 calendar days to respond and provide a satisfactory showing. If that does not happen, the person can be denied coverage or disenrolled.

Moratorium-Related Changes

Congress imposed a moratorium through Sep 30, 2034, on regulations changed by the 2024 Eligibility and Enrollment Final Rule. Many of those provisions dealt with renewals, application processing, and timeliness standards. Because those rules are important for running the new community engagement requirement, the IFC brings back the earlier versions of the affected regulations until Oct 01, 2034.
This may sound technical, but it matters. It effectively restores the older eligibility and enrollment framework CMS says states need in order to administer the new work requirements.

The Medical Frailty Exemption

One of the most important and controversial parts of the rule involves the medical frailty exemption.

The statute sets out five ways someone can qualify as medically frail. A person may qualify if they are blind or disabled under the Supplemental Security Income definition, have a substance use disorder, have a disabling mental disorder, have a physical, intellectual, or developmental disability that significantly limits daily living activities, or have a serious or complex medical condition. Under the text of the statute, meeting any one of those categories should mean the person is medically frail or otherwise has special medical needs, and is therefore exempt from the work requirement.

CMS, however, added another layer. Under the IFC, a person is medically frail only if the condition also significantly limits their ability to comply with the community engagement requirement. In practical terms, that means someone may have to show not only that they fit one of the listed categories, but also that their condition keeps them from completing 80 hours a month of qualifying activity.

That added requirement is likely to draw legal challenges. Critics will likely argue that Congress already defined who should qualify for the exemption and did not authorize CMS to create an extra functional-capacity test. CMS says it adopted this approach to avoid exempting people whose diagnosis does not actually affect their ability to engage in work or related activities. Patient advocacy groups see it differently. They argue CMS has effectively rewritten the law by turning the exemption into a test of work capacity that Congress never required.

The American Cancer Society Cancer Action Network, for example, criticized the rule on the grounds that it makes it harder for medically frail individuals, including cancer patients, to receive the exemption Congress intended them to have. The organization also said that patients and survivors may now have to go through a burdensome process to prove they cannot work.

State Implementation and What Comes Next

The statute requires implementation to begin no later than Jan 01, 2027, and the IFC confirms that deadline. States now face a major operational task. They will need to update Medicaid Enterprise Systems, pass authorizing legislation where necessary, build verification systems that connect to multiple data sources, and prepare new forms, notices, and outreach materials. CMS estimates that system changes alone will cost about $15 million per state on average, or around $660 million nationally. That figure does not include the ongoing cost of running the program, such as reviewing compliance, issuing notices, and managing appeals.

States that cannot meet the Jan 2027 deadline may ask for a good faith effort exemption. But that relief is limited. It cannot extend past Dec 31, 2028, and it cannot be renewed. CMS says it will review these requests based on whether a state has a detailed work plan and whether it has shown real, measurable progress throughout 2026.

Because CMS had been previewing its approach through guidance and presentations for months before the rule was issued, many states have already submitted Advanced Planning Documents for the needed system changes. That kind of early preparation may help support a state’s request for a good faith effort exemption if it falls behind.

Looking Ahead

CMS has classified this as a significant regulatory action, with projected costs that could exceed $100 million in at least one year. The agency expects the rule to lead to disenrollment for around 15% of total adult group enrollment. At the same time, CMS believes that as many as 4.4 million people will meet the requirement and says participation could improve both economic and health outcomes for those individuals.

The comment period remains open until Jul 31, 2026. That gives states, providers, advocates, and other stakeholders a chance to weigh in before implementation moves forward. The medical frailty definition, the verification process, and the standards for granting good faith effort exemptions are likely to be some of the biggest focus areas in those comments.