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What the interim final rule requires
CMS published the interim final rule on June 3, and it took effect July 31, the same day the comment period closed. It implements the community engagement requirement Congress added to Medicaid law. States must put it in place no later than Jan. 1, 2027, and may start earlier if they meet certain conditions.
The requirement applies to adults ages 19 through 64 in the expansion adult group and certain demonstration populations, excluding people who are pregnant or enrolled in Medicare. To qualify, individuals must log at least 80 hours a month of work, community service, a work program or at least half-time education, or a combination. Monthly income of at least $580, equal to 80 hours at the federal minimum wage, also satisfies the test. States verify compliance at application and renewal, and may choose to check more often.
The scale is large. CMS reports that about 20 million of the roughly 82.4 million people enrolled in Medicaid in FY 2025 were in the adult group, which accounted for about $200 billion in combined federal and state spending.
Where hospitals pushed back
The American Hospital Association filed comments on July 31 focused on two provisions:
- Medical frailty. CMS’s definition adds an overarching functional impairment test. The AHA argues this could deny exemptions to people with serious or complex conditions who do not meet that bar.
- Good-faith exemptions. States can seek a temporary exemption from the implementation deadline only by showing extraordinary or severe barriers. The AHA warns this could push states to launch before their systems are ready, increasing coverage losses for procedural reasons such as missed paperwork rather than actual noncompliance.
The association asked CMS to reconsider both and give states more flexibility.
Preparing for 2027
Hospitals with large expansion populations should model a range of disenrollment scenarios for 2027 and their effects on self-pay volume, bad debt and charity care. Several practical steps can reduce the damage:
- Train financial counselors on qualifying activities, exemptions and documentation so they can help patients keep coverage.
- Flag patients likely to qualify as medically frail and make sure clinical documentation supports that status.
- Coordinate with your state Medicaid agency and hospital association on implementation timelines and data sharing.
- Review presumptive eligibility and enrollment assistance workflows, especially in emergency departments.
Archive entry for Aug 2, 2026, added Nov. 11, 2026.