The Centers for Medicare and Medicaid Services (CMS) on June 1, 2026, released an interim final rule with comment (IFC) interpreting and implementing key components of The Working Families Tax Cut Act (also known as HR 1, or the One Big Beautiful Bill (OBBB)) focusing on community engagement requirements and associated exemptions (better known as the work requirements). The community engagement requirements apply to beneficiaries who qualify for Medicaid under the expansion authorized in the Affordable Care Act – this population is primarily childless adults ages 19-64 with no other categorical Medicaid eligibility (eg age, health status, pregnancy). All states except Alabama, Florida, Kansas, Mississippi, South Carolina, Tennessee, Texas, and Wyoming have populations that will be subject to the new community engagement requirements.

LeadingAge met with CMS as they contemplated language and policies for this rule and submitted thoughts, particularly around the medical frailty and caregiving exemptions, along with concerns about residents in affordable housing under age 65. Most of the Medicaid population our members see on a day-to-day basis are not subject to community engagement requirements. Medicaid beneficiaries over 65 are not included in the expansion population, therefore not needing to comply with work requirements. Similarly for individuals receiving Medicaid due to categorical eligibility such as qualifying for long term services and supports either in a nursing home or through a home and community-based services (HCBS) waiver. LeadingAge also expressed that CMS and states must provide extensive education to enrollees and stakeholders about included and applicable populations. Additionally that states should test systems and eligibility logic to ensure their systems would not mistakenly ask an exempt individual to comply with community engagement requirements – since so many new requirements, and corresponding IT infrastructure updates are going into place at once, it is likely mistakes will occur.

This rule also contains guidance on eligibility determinations and the moratorium of the streamlining rule. The Medicaid Program; Streamlining the Medicaid, Children’s Health Insurance Program, and Basic Health Program Application, Eligibility Determination, Enrollment, and Renewal Processes (Streamlining Rule) (2024 E&E Rule) finalized in April of 2024 limited states to conducting Medicaid renewals no more often than annually, and encouraging states to enact policies that reduce barriers for Medicaid enrollment. Because of the law’s (HR 1) moratorium on enforcement of the 2024 E&E Rule and a separate requirement to renew Medicaid Expansion eligibility every six months, the rule also needed to address rolling back some provisions from the 2024 E&E Rule to align the rule with the new statute.

HR 1 and Community Engagement Requirements

The law states that in order to comply with the community engagement reporting requirement, individuals must demonstrate 80 hours per month of verifiable work, volunteer, half-time educational enrollment or qualification for one of many exemption categories. States are directed by CMS to use existing reported data to verify compliance with work requirements, which will require states to find data sources and develop process for analyzing and automating the eligibility determination.

Additionally, states are currently developing systems and portals to accept and house enrollee-level inputs for verification of work requirements- yet another IT and financial burden. States interested in reducing barriers for enrollment and verification are facing complicated and expensive policy and process implementation for these new requirements by deciding how to operationalize offering maximum flexibility for enrollees and applicants to use multiple forms of submission including direct-online, e-mail, snail mail, fax, direct-drop at multiple physical locations, or others.

Exemptions

HR 1 does not require that every Medicaid enrollee be subject to community engagement requirements, just those from 19 through 64 that are eligible through Medicaid expansion or similar policies (WI and GA). The legislation includes exemptions from community engagement requirements that required further refinement via rulemaking which is done in this rule. The definition of exemptions was a key piece of information that states were waiting on via this June 1 rulemaking. Two key pieces awaiting further information were definitions and timelines associated with medical frailty and caregiver exemptions.

The Medical Frailty Exemption

The law’s language indicates that an individual “who is medically frail or otherwise has special medical needs (as defined by the Secretary) including… with a serious or complex medical condition” would be exempt from community engagement reporting and be known as a ”specified excluded individual.” — this is the term defined throughout the rule to refer to a person who receives an exemption from community engagement requirements. Much attention comes to this exemption in how states could use diagnoses codes, among other data sources to exempt individuals without comprehensive review of their circumstances. While the rule does require states to establish lists of diagnoses that can qualify for medical frailty, it is unclear how useful that tactic will be in actually defining medical frailty given the other parameters set forth. Namely, while states can use lists of diagnoses, these lists alone cannot establish an individual as exempt. Rather, in order to become a “specified excluded individual,” the medical condition or diagnosis must directly cause an inability to work which will require some sort of documentation.

States will struggle to establish policies that tie diagnosis to inability to work in a demonstrable way. Documentation of such limits will probably come either in the form of additional medical documentation from a physician, or additional processes such as screenings to demonstrate how a condition limits abilities to work. In either instance, this adds a relatively subjective step into state approvals of exemptions, and significant work by states on the front end to establish processes and policies – work that they have not been able to fully undertake at this point given the recent release of this rule. This interpretation of medical frailty will cause tremendous burden on states and may be challenged in court.

Many stakeholders, including LeadingAge, asked CMS to use self-attestation to qualify for an exemption under medical frailty. The law specifically allows states to accept attestations for a person’s medical frailty because people applying for Medicaid may have a dearth of claims history therefore posing challenges in proving medical frailty. CMS is allowing self-attestation in year 1 (2027) and after that, only once per enrollment period – which will cause burden on both states and beneficiaries.

The Caregiving Exemption

HR 1 included exemptions for “caretaker relatives” and “caregivers to disabled individuals” and instructs CMS to use the definition from the Recognize, Assist, Include, Support and Engage (RAISE) Family Caregivers Act. CMS declines to use this definition – they explain that the proposed definition from the RAISE Family Caregivers Act covers a different population than that needed to be covered with this exemption.  In their analysis, CMS further breaks down the component parts of the specified excluded individual to include analysis of dependent child and disabled individual. CMS exempts individuals from work reporting requirements as specified excluded individual for the purpose of the caregiver exemption  if the person provides care to a person with disability or dependent child on a “regular and not solely incidental basis” and :

1. The individual resides with the dependent child or person with a disability.
2. The individual is a relative of (defined in caretaker relative definition, without domiciliary and responsibility clauses) the child or person with a disability.
3. The individual neither resides with nor is a relative of the child or person with a disability and provides not less than 80 hours of assistance per month.

CMS describes that they believe both living with and being related to an individual who requires regular care is difficult to fully quantify and often is more intensive and extensive leading CMS not to impose an hourly minimum on these caregiving relationships. When defining ‘disability’, CMS settled on use of the definition codified in the Americans with Disabilities Act at 28 CFR 35.108 allowing for broad interpretation and expansive coverage if states elect broad adoption under the multi-pronged definition construction.

Eligibility Determinations and Moratorium

Community engagement requirements are inextricably linked with two other policies promulgated by HR 1. Section 71107 which is a requirement to increase the frequency of eligibility determinations to biannually from annually) and  Section 71102, a moratorium on enforcement of the E& E Rule.  As a result, these sections of the law are also included in this rulemaking.

The Streamlining rule, codified the maximum frequency of Medicaid redeterminations at an annual interval and introduced additional beneficiary protections like prohibiting states from requiring in-person interviews for completion of Medicaid applications and redeterminations, along with initial and alternate communications approaches when contacting enrollees about their ongoing eligibility or redetermination. In order to provide guidance on community engagement requirements and on increased eligibility checks, CMS had to formalize the rollback of these components of the 2024 rule such as beneficiary protections limiting parameters on renewal contact attempts by states, and limiting renewals to no more often than annually. To establish twice annual redeterminations and allow states increased options and reduce operational burden, many portions of the Streamlining Eligibility rule were struck, reverting states back to pre-2024 enrollment regulations. In many instances, CMS was silent prior to 2024 on how, what, or if states could or should require certain actions or documentation during the enrollment or redetermination process, giving states broad freedom to impose strict policies and administrative hurdles to access or remain enrolled in Medicaid.

Frequency of redeterminations, also for ‘specified excluded individuals.’

States have an option to conduct more frequent compliance audits of individuals, dependent on the states’ articulated policies. A state could select monthly verification of employment to remain eligible for Medicaid expansion. On the contrary, ‘specified excluded individuals’- those that have demonstrated an exemption from the work reporting requirements – cannot be asked to provide evidence of meeting an exemption more frequently than every six months. There is an option for states to extend exemptions for medical frailty redetermination to annually. States are to use available data to reverify exemptions in every case possible, prior to seeking information from enrollees.

The law requires states to have infrastructures in place and compliance reporting to begin on January 1, 2027, with the allowance of states to submit for good faith extensions through calendar year 2028. CMS has previously articulated low interest in approving these extensions, though the harshly more restrictive link between exemptions and the ability to work, and prohibition on states automatically granting exemptions for medical frailty for certain diagnoses or comorbidities. States will need to complete multi-pronged reviews of exemption requests, causing exponentially more policy development and operational effort. These factors may prompt CMS to change course slightly and support states in implementing policies meeting CMS objectives on a more realistic timeline, with an extension.

The rule is effective July 31, with comments due on the same day.  LeadingAge will be composing and submitting comments on the rule.