Behavioral health leaders are facing a major Medicaid policy shift after CMS issued an interim final rule June 1 outlining how states must implement Medicaid work requirements beginning Jan. 1, 2027, KFF reported June 23.
Under the 2025 reconciliation law, adults in the Affordable Care Act Medicaid expansion population in 44 states, as well as enrollees in certain waiver programs in Georgia, Tennessee and Wisconsin, will be required to meet work or community engagement requirements unless they qualify for an exemption.
Here are five things to know:
- Mental health and substance use disorders remain qualifying categories. The medical frailty exemption includes individuals with a substance use disorder and those with a “disabling” mental disorder, among five categories specified in the law.
- A diagnosis alone will not qualify a patient for an exemption. States must determine not only whether an individual has a qualifying condition, but also whether that condition significantly impairs their ability to engage in community engagement activities, including work or volunteering.
- Patients in long-term recovery may not qualify under the SUD category. The rule says individuals with a substance use disorder may qualify regardless of whether they are in active treatment, but excludes individuals who have been in active recovery for five or more years.
- Behavioral health conditions may be difficult for states to verify. The rule acknowledges that individuals with behavioral health conditions may be harder to identify through claims data. States also cannot rely on diagnosis codes alone because they must assess whether a condition limits an individual’s ability to work.
- Behavioral health providers could face new documentation burdens. States may need to rely on treating providers to verify both a patient’s condition and their ability to participate in community engagement activities. CMS provides limited guidance on what information providers should submit, raising concerns about additional administrative burden and subjective eligibility determinations, according to the report.
Read more on the interim final rule here.
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