On June 1, 2026, the Centers for Medicare & Medicaid Services (CMS) issued an interim final rule (IFR) with comment period implementing a new statutory requirement that certain adults in Medicaid meet an 80-hour-per-month community engagement requirement as a condition of eligibility. The IFR takes effect on July 31, 2026, and states must implement the community engagement requirement no later than January 1, 2027. To ensure consideration, comments on the IFR must be received by CMS by July 31, 2026.
The rule establishes a nationwide operational framework that CMS describes as “designed to promote economic stability, self-sufficiency, and independence.”[1] It requires affected Medicaid applicants to demonstrate 80 hours per month of qualifying activities such as employment, participation in certain work programs, community service, or enrollment in an educational program at least half-time. New Medicaid applicants must meet the requirement for at least one month before the month of application, while existing Medicaid beneficiaries must meet the requirement for one or more months between renewals.
CMS Administrator Dr. Mehmet Oz stated, “This rule helps Americans build skills and independence through work, education, job training, or community service, creating new opportunities for themselves and their families.”[2] However, coverage-loss projections from both CMS and the Congressional Budget Office (CBO) point to significant downstream implications for Medicaid beneficiaries and the hospitals and providers that serve them.
Impact Analysis
Medicaid Enrollment
CMS projects that the community engagement requirement will reduce Medicaid enrollment by 2.3 million individuals in fiscal year (FY) 2027 (accounting for implementation occurring in the second quarter of the fiscal year) and 3.1 to 3.3 million individuals annually thereafter. CMS estimates that these enrollment reductions will result in a $350.3 billion reduction in federal Medicaid spending and a $41.6 billion reduction in state Medicaid spending over 10 years.[3] CMS attributes these savings primarily to reduced enrollment rather than changes in per-enrollee spending. Notably, CMS attributes nearly 43 percent of projected coverage losses (or 6.4 of 15 percentage points) to procedural disenrollment rather than failure to satisfy the community engagement requirement.[4]
Separately, the CBO estimates that 18.5 million adults each year will be subject to the community engagement requirement and will need to regularly demonstrate compliance or prove that they qualify for an exemption.[5] The CBO also estimates that, by 2034, 2.9 million adults subject to the community engagement requirement will lose federal Medicaid coverage, and 2.8 million additional adults will lose coverage because the requirement will add steps to the application process.[6] CBO estimates that the community engagement requirement will increase the number of people without health insurance by 5.3 million.[7]
While CMS and CBO both project substantial coverage losses, their estimates are not directly comparable because they evaluate the policy through different analytic frameworks. CMS’s impact analysis reflects the agency’s estimate of the IFR’s implementation effects, including assumptions about the timing of state implementation, the share of affected individuals who will satisfy the requirement or qualify for exemptions, and the extent of procedural disenrollment. By contrast, CBO’s estimate evaluates the broader statutory requirement enacted under Public Law 119-21 and reflects CBO’s independent assumptions about how the requirement will affect Medicaid enrollment and the uninsured population over time.
Although the estimates differ in magnitude, both analyses indicate that the community engagement requirement will result in significant Medicaid coverage losses. Importantly for hospital systems, the practical implications are similar under either estimate: fewer covered patients, increased risk of procedural disenrollment among otherwise eligible individuals, greater uncompensated care exposure, and increased operational demands associated with patient education, eligibility navigation, and renewal support.
Hospital Systems
Beyond potential coverage loss for Medicaid beneficiaries, the community engagement requirement could also affect hospital systems’ finances, operations, and care delivery—an important but less examined consequence of the policy.
- Reducing Revenue. The Commonwealth Fund predicts that hospitals in Medicaid expansion states could see operating margins reduced by an average of 11.7 percent to 13.3 percent.[8] Although hospitals may incur lower operating expenses when uninsured individuals use fewer hospital services, those savings are projected to be outweighed by larger revenue losses. The Commonwealth Fund estimates that hospital expenses would decline by $5.5 billion to $6.3 billion, but hospital revenues would decline by $10.9 billion to $12.4 billion, resulting in a net deterioration in hospital finances.[9]
- Increasing Uncompensated Care Costs. As more Medicaid beneficiaries lose coverage, hospital systems are likely to face higher uncompensated care costs.[10] This may lead to an increase in bad debt and financial assistance needs, especially in emergency and inpatient settings where care must still be provided.
- Administrative Burden. Although states are responsible for determining eligibility, hospitals may take on a greater frontline role in helping patients understand and comply with the requirement.[11] Patient access teams may need to confirm eligibility and explain reporting rules, while financial counselors and care coordinators may help patients document qualifying activities or identify exemptions.[12]
Affected Population
The community engagement requirement applies to non-pregnant adults between the ages of 19 and 64 who are not entitled to or enrolled in Medicare and are eligible for or enrolled in the Medicaid adult group or in certain section 1115 demonstrations that provide minimum essential coverage to adult beneficiaries.
Certain individuals are exempt from the requirement, including individuals who are pregnant or in a postpartum period; disabled or medically frail; parents and caretakers of children under 14 years of age, or people with disabilities, American Indians and Alaska Natives, and certain others. CMS allows individuals to attest that they meet an exemption from the community engagement requirement for 2027, with documentation to support the exemption required beginning in 2028.
Medically Frail Individuals
CMS defines medically frail individuals as those whose physical, mental, or behavioral health condition significantly impairs their ability to comply with the community engagement requirement and who meet one or more specified criteria. These include individuals who are blind or disabled (as defined in Section 1614 of the Social Security Act (42 U.S.C. § 1382c)); have a substance use disorder (unless in stable recovery for five or more years); have a disabling mental disorder; have a physical, intellectual, or developmental disability that significantly impairs their ability to perform one or more activities of daily living; or have a serious or complex medical condition.
State Responsibility
States will have flexibility to determine which conditions qualify for the medical frailty exemption. However, the IFR requires states to verify the presence of a condition or diagnosis that meets the medical frailty criteria and that the condition significantly impairs the beneficiary’s ability to comply with the community engagement requirement.
To verify that an individual qualifies for the medical frailty exclusion, states must use all reliable data available, including adjudicated claims and encounter data from the preceding 12 months, before requesting information from the individual.[13]
To date, 43 states and the District of Columbia provide coverage to Medicaid populations and will be required to implement the new requirement. U.S. territories are not subject to the law. CMS is also establishing new reporting requirements and will use existing data reporting systems to monitor state implementation. States that fail to submit required data or show compliance issues may be subject to corrective action.
Action Steps and Considerations
Hospital systems should consider the following strategies to address potential challenges associated with implementing the community engagement requirement.
- Financial Forecasting. Hospital systems should establish baseline Medicaid enrollment and revenue data to model how coverage losses and procedural disenrollment could affect finances, service utilization, and staffing needs.
- Patient Outreach and Communication. Hospital systems should identify patients subject to the community engagement requirement early by tracking Medicaid renewal and reporting dates at the patient level. They should also clearly communicate new requirements, renewal timelines, and reporting deadlines, prioritizing outreach to Medicaid enrollees at greatest risk of disenrollment.
[1] https://www.cms.gov/newsroom/press-releases/cms-launches-nationwide-framework-implement-medicaid-work-requirements
[2] https://www.cms.gov/newsroom/press-releases/cms-launches-nationwide-framework-implement-medicaid-work-requirements
[3] https://www.federalregister.gov/documents/2026/06/03/2026-11094/medicaid-program-community-engagement-requirement-for-certain-individuals
[4] https://www.federalregister.gov/documents/2026/06/03/2026-11094/medicaid-program-community-engagement-requirement-for-certain-individuals
[5] https://www.cbo.gov/system/files/2025-06/Wyden-Pallone-Neal_Letter_6-4-25.pdf
[6] https://www.cbo.gov/system/files/2025-10/PL-119-21-Medicaid%20_0.pdf
[7] https://www.cbo.gov/system/files/2025-10/PL-119-21-Medicaid%20_0.pdf
[8] https://www.commonwealthfund.org/publications/issue-briefs/2025/sep/impact-medicaid-work-requirements-hospital-revenues-margins
[9] https://www.commonwealthfund.org/publications/issue-briefs/2025/sep/impact-medicaid-work-requirements-hospital-revenues-margins
[10] https://academicmedicine.aamc.org/stories/proposed-cuts-medicaid-would-harm-patients-and-hospitals
[11] https://www.forvismazars.us/forsights/2026/06/medicaid-community-engagement-how-hospitals-can-prepare
[12] https://www.forvismazars.us/forsights/2026/06/medicaid-community-engagement-how-hospitals-can-prepare
[13] Beginning January 1, 2028, states may use self-attestation once to verify medical frailty when claims or encounter data are not available.
