CMS has additional guidance on Medicaid work requirement exemptions

The Centers for Medicare and Medicaid Services (CMS) has released additional guidance on how states can determine whether Medicaid beneficiaries are too “medically frail” to participate in work requirements.

A nationwide work requirement was passed under the One Big Beautiful Bill Act and means that, to stay enrolled, most Medicaid beneficiaries must complete 80 hours of “qualifying activities” per month, including working or participating in certain work programs, being enrolled at least part time in an educational program, or performing community service. The rule takes effect in January 2027, though states are allowed to implement it earlier. Georgia has had a work requirement in place since 2023, and Nebraska, Montana, and Arkansas have all either launched or started rolling out work requirements.

The Trump administration has said it’s putting work requirements in place to control government spending and encourage more people to participate in the workforce, claiming that many people on Medicaid who are able-bodied don’t work at least 80 hours per month.

However, according to a KFF analysis, as of 2023, just 8% of Medicaid recipients under age 65 who don’t receive other Social Security benefits and are not covered by Medicare weren’t working full or part time. Those beneficiaries were either retired, unable to find work, or were not working for another reason.

Some beneficiaries are unable to complete any of the required activities due to illness or disability. Following widespread confusion over how states would determine who may be exempt due to their medical frailty status, the agency in early September presented a tiered system that states can use.

The guidance is a step forward in gaining clarity, but there still are “open questions,” Amaya Diana, a policy analyst with KFF’s Program on Medicaid and the Uninsured, told Healthcare Brew.

CMS declined Healthcare Brew’s request for comment. We also reached out to the Department of Health and Human Services (HHS) but did not hear back by publication.

How the system works. The biggest uncertainty surrounds how states can prove that a person has a condition that makes them medically frail and that their condition is severe enough that they can’t participate in the required activities. That requirement was included in an interim final rule CMS released in June.

Based on earlier guidance from CMS, states were expecting that a diagnosis alone would suffice across the board, according to Diana. Some states had to change the plans and processes they had put in place and start over.

Under the tiered system outlined by CMS in September:

• Tier 1 conditions would be those “that are considered so severe that just having the diagnosis alone, you could look at it and say, ‘Okay, this person meets the medical frailty level,’” Diana said, such as having severe dementia. States could verify someone’s exempt status using just diagnostic codes without having to seek any additional documentation.
• Tier 2 conditions would be diagnoses that may make someone medically frail but require additional documentation to verify the person is sick enough to not be able to meet the activity requirements. For example, someone with Type 2 diabetes may have severe complications like neuropathy and be unable to work, volunteer, or go to school, while someone else with well-controlled diabetes may be able to.
• Tier 3 status would encompass beneficiaries with insufficient or no data to determine medical frailty. The state would need to conduct a manual review in these cases.

Using this system is not mandatory for states, Diana noted.

Lobbying group the American Medical Association said in a Sept. 11 statement that the guidance “provides some helpful operational clarification.” However, “many individuals are still likely to require manual review, creating substantial administrative burdens for states and physicians and increasing the risk that eligible individuals will lose coverage because they are unable to obtain or submit sufficient documentation,” the statement continued.

Diana added that it’s unclear how states would go about pooling data for conditions falling into the second tier. The guidance said states could look at whether someone had been recently hospitalized, how many prescriptions they take, or what kind of medical equipment they use to help determine their ability to meet the requirements. Gathering that information would involve combining data from multiple sources.

“It’s definitely going to be a big lift for states on the system side of just getting all of these new systems set up, all of these different data sources talking together,” Diana said. “It’d be pretty complicated algorithms to be implementing.”

Legal troubles. Two dozen state attorneys general and two governors sued the Trump administration in June, arguing the work requirement rule was too prohibitive. A federal judge later declined to block the rule. A group of medical organizations, including the American College of Physicians (ACP), as well as a handful of Medicaid beneficiaries, also sued CMS and the HHS over the rule in September.

“The American College of Physicians is deeply concerned about the impact of work requirements on Medicaid patients,” Jan Carney, president of the ACP, said in an email statement shared with Healthcare Brew. “Medicaid beneficiaries are, by definition, individuals with limited incomes and resources. We should not and must not be implementing policies that place this already vulnerable population at increased risk of interrupted treatment, disrupted coverage, or losing healthcare access altogether.”

Patient organizations have been urging CMS to reconsider the rule and prevent coverage losses. The Congressional Budget Office (CBO) estimates the work requirement could lead to 5.3 million fewer people having health insurance by 2034. Other estimates put that number as high as 10.1 million by 2028.

The CBO and Joint Committee on Taxation also estimate that implementing the requirements will decrease deficits by $317 billion from 2025 to 2034.