The Centers for Medicare & Medicaid Services Releases Rule Implementing Medicaid Community Engagement Requirements
On June 2, 2026, the Centers for Medicare & Medicaid Services (CMS) released an interim final rule implementing H.R. 1’s Medicaid community engagement requirements. The rule takes effect July 31, 2026, and states must implement the new requirements no later than January 1, 2027.
The rule establishes who must demonstrate community engagement as a condition of Medicaid eligibility, which activities qualify, who may be exempt, and how states must verify compliance. For behavioral health stakeholders, the implementation details may be just as important as the policy itself. How states define exemptions, verify eligibility, and communicate requirements will help determine whether eligible individuals maintain coverage or experience disruptions in care.
What the Rule Requires
H.R. 1 requires many Medicaid expansion adults ages 19 to 64 to demonstrate community engagement. People subject to the rule must prove that they have at least 80 hours per month of work, community service, participation in a work program, education, or a combination of qualifying activities. Individuals may also qualify through a monthly income equal to at least 80 hours at the federal minimum wage. At the current federal minimum wage, that threshold is $580 per month.
The rule excludes some people from the requirement, including people CMS defines as “medically frail,” which includes people with substance use disorder (SUD), and those with a “disabling mental disorder.” However, diagnosis alone is not sufficient. CMS emphasizes functional impairment, meaning a person’s condition must significantly limit their ability to comply with community engagement requirements.
Why Behavioral Health Stakeholders Should Pay Attention
Medicaid is central to behavioral health coverage in the United States. It is the largest single payer of mental health services. As a result, even modest increases in coverage loss could have significant consequences for access to treatment, medication, and recovery supports. If people with behavioral health conditions lose Medicaid, they may lose access to needed treatment, medication, and recovery supports. Coverage loss can also increase crisis demand, emergency department use, hospitalization, homelessness, and justice-system involvement.
CMS gives examples of mental health and SUD conditions that may qualify when they are disabling and significantly impair compliance, while noting that this list is not exhaustive. This flexibility creates both opportunity and risk. States can design standards that recognize the realities of serious mental illness and substance use disorders, including episodic symptoms and co-occurring conditions. Alternatively, narrow interpretations could leave some individuals with significant limitations subject to reporting requirements they may struggle to meet consistently.
For many individuals, functional impairment affects more than employment. Mental health and SUD conditions can affect memory, concentration, sleep, judgment, motivation, communication, and the ability to manage deadlines. They can also affect the ability to read notices, gather documentation, use online portals, attend appointments, report hours, and respond to state requests.
In the interim rule, CMS excludes individuals in “stable recovery,” defined as recovery for five or more years, from the SUD medically frail exclusion. That limitation deserves close scrutiny. SUD is widely understood as a chronic condition, and recovery does not eliminate the need for treatment, recovery supports, relapse prevention, or trusted access to care. A bright-line five-year recovery standard may be difficult for states to administer and may not reflect individual clinical risk, co-occurring mental health conditions, housing instability, trauma history, or other factors that can affect compliance.
Key Implementation Questions for States
The rule requires states to attempt ex parte verification before asking people for documentation. This means states must use reliable information already available to them when possible. CMS specifically points to adjudicated claims and encounter data from the preceding 12 months as relevant sources for medical frailty verification.
That requirement is important, but may not identify everyone who qualifies for an exclusion. Claims data may be incomplete, recent enrollees may have limited claims history, and individuals receiving services outside traditional Medicaid billing systems may not be easily identified.
Behavioral health data also raises privacy and stigma concerns. People may avoid disclosing SUD or mental health conditions if they do not trust the process. They may fear consequences for housing, employment, child welfare, immigration, or criminal legal involvement, even when those fears are not tied to the Medicaid eligibility process.
The rule says absence of claims or encounter data cannot, by itself, justify denial of the medically frail exclusion. States must give people another opportunity to provide information when the state cannot verify eligibility through available data.
However, that safeguard will only be effective if states make the process accessible. A person who qualifies for an exclusion may lose coverage if the notice is confusing, the form is inaccessible, the documentation standard is burdensome, or the timelines are unrealistic. Requiring clinicians to certify every exclusion could further delay care and increase administrative burdens during an ongoing behavioral health workforce shortage.
What States Can Do to Reduce Coverage Loss
As states implement the rule, four priorities should guide their approach.
First, states should adopt practical definitions of functional impairment that reflect how behavioral health conditions affect an individual’s ability not only to work, but also to comply with reporting and documentation requirements.
Second, states should minimize administrative burden by maximizing automated verification, using simple screening tools, and relying on member attestation whenever appropriate. States should avoid systems that shift the burden entirely to members and providers.
Third, states should engage advocates, providers, people with lived experience, and community-based organizations in implementation planning. Advocates can identify due process concerns, language access barriers, and populations likely to lose coverage for procedural reasons. Providers can explain what documentation is realistic, what data states already have, and what requirements would overwhelm clinical teams. Peer specialists, recovery organizations, crisis providers, SUD treatment providers, community mental health centers, federally qualified health centers, managed care organizations, county agencies, and legal aid organizations should all have a role in shaping implementation plans that reflect how people actually experience the Medicaid system.
Fourth, states should monitor harm in real time. They should track coverage losses by exemption category, diagnosis, race, ethnicity, geography, language, disability status, SUD history, and behavioral health service use. They should also distinguish procedural terminations from true findings that someone failed to meet the requirement.
The goal should not be efficient disenrollment. The goal should be to prevent avoidable loss of coverage – and ensure access to needed, life-saving care.
Conclusion
CMS’s interim final rule establishes the framework for implementing H.R. 1’s Medicaid community engagement requirements, including who must comply, who may qualify for exemptions, and how states must verify eligibility. For people with mental health conditions and substance use disorders, the medically frail exclusion provides an important protection, but its effectiveness will depend largely on how states implement the rule.
Over the coming months, states will make key decisions about functional impairment standards, verification processes, documentation requirements, and beneficiary communications. Providers, advocates, and people with lived experience should engage early to help ensure those decisions minimize administrative barriers and preserve access to care.
As states move toward the January 1, 2027 implementation deadline, stakeholders should closely monitor proposed policies, operational guidance, and early enrollment trends. The ultimate measure of success will not be how efficiently states enforce the requirement, but whether they are able to preserve access to behavioral health services for eligible individuals while complying with the law.
Third Horizon can help states, providers, managed care organizations, and community-based partners prepare for these decisions. Our team can support scenario planning, stakeholder engagement, policy analysis, and implementation monitoring. We’d love to partner with you to preserve access to mental health and SUD services while states comply with federal requirements.