On June 1, the Centers for Medicare and Medicaid Services (CMS) released an interim final rule with comment period (IFC) on Medicaid work requirements (which it calls “community engagement requirements”). The comment period will remain open through July 31, and the requirements are expected to go into effect January 1, 2027.

What’s in the Proposed Rule?

Eligibility: The IFC defines individuals subject to requirements as non-pregnant adults 19–64 years old who are enrolled in an ACA Medicaid expansion group or are subject to certain Section 1115 demonstration waivers that provide Minimum Essential Coverage to individuals not otherwise eligible for Medicaid. As of June 2026, 43 states and DC provide coverage to these populations.

The IFC also defines nine groups that would be exempt from the requirements, pending verification from states, including enrollees who are medically frail. Of note, the proposed rule imparts a stricter definition of “medically frail” than initially anticipated by states and Managed Care Organizations (MCOs).

For example, the existence of a serious or complex medical condition is not sufficient to be exempt from the requirement; that condition must also impair at least one activity of daily living (ADL). ADLs are the essential, routine tasks individuals perform independently to care for themselves. The six core categories of ADLs are mobility and transferring (e.g., getting out of bed), bathing and grooming, dressing, toileting, continence, and eating.

Meeting the Requirements: The IFC also outlines the parameters needed to meet work requirements, exception processes, and state verification requirements. Notably, the IFC prohibits states from delegating eligibility verification to MCOs.

States must implement the work requirement by January 1, 2027. Those unable to meet the deadline may request a “good faith effort” extension through December 31, 2028. States that do not meet the implementation deadline and do not request an extension may be subject to corrective action by HHS, which could include withhold of federal funding.

MCOs Must Prepare to Deploy Strategies to Mitigate Potential Impacts

Taken together, CMS projects a combined 15% disenrollment of applicable individuals: 8.9% from beneficiary noncompliance and 6.4% from procedural disenrollment. Impacts may be disproportionate across states as the state agencies implement processes and systems to verify enrollee eligibility, exclusion, and compliance. Untimely or inaccurate eligibility verifications may result in individuals losing coverage.

MCOs can take steps to mitigate the impacts of these changes, including by proactively modeling changes  to their business and developing strategies to support members, providers, and other stakeholders.

Internal Modeling and Business Impacts Predictions: MCOs should start modeling the potential scenarios that could impact their membership enrollment levels and risk pool characteristics if the IFC is finalized as proposed. Specifically, MCOs should develop:

• Models of Potential Enrollment Impacts: Model state-level changes to eligibility and enrollment to understand the impact of each of the MCO’s operating markets and target markets for expansion.
• Predictive Model Scenarios for Risk Pool Changes: Model population-level eligibility and enrollment to inform benefit design and financial planning.

Support for Members, Providers, and Other Stakeholders: Further, MCOs should deploy several strategies to prepare for and mitigate potential impacts to key stakeholders:

• Member and Caregiver Education: Create educational materials and engagement campaigns to support members navigating work requirements processes, including qualifying for exemptions and meeting eligibility requirements.
• Provider Engagement: Develop provider communications and support tools to facilitate the documentation of beneficiary health conditions and ADL impairments appropriately and accurately in ways that will meet state verification requirements.
• Community Engagement: Partner with community-based organizations to identify and develop resources to connect members with [word missing] to meet work requirements.
• State Relations: Work with state agencies to ensure they are evaluating and have access to the necessary data sources to make determinations.

Let’s Collaborate

Avalere Health Advisory’s Medicaid experts work closely with MCOs navigating market, policy, and environmental shifts. Whether your team is preparing a comment letter ahead of July 31, considering strategic modeling to get ahead of these changes, or developing stakeholder support resources, we offer the technical knowledge needed to forge ahead.

Connect with us to continue the conversation.