CMS Announces New Medicaid Eligibility Requirements: Implications for Managed Care Plans

On Wednesday, June 3, 2026, the Department of Health and Human Services (HHS) published an interim final rule with comment (IFC) instructing all state Medicaid agencies to incorporate “community engagement” as an eligibility condition for program participation by no later than January 1, 2027. The rule (Medicaid Program; Community Engagement Requirement for Certain Individuals) does not impose affirmative operational obligations for Medicaid managed care plans, as it focuses primarily on equipping the states to administer the community engagement requirement. However, it does establish a few specific guardrails to govern the role managed care organizations, prepaid inpatient health plans, and prepaid ambulatory health plans may — and may not — play in that administration.

The publication of the IFC comes as a direct follow-up to congressional instructions laid out in Section 71119(d) of H.R. 1 (the “One Big Beautiful Bill Act”), which ordered the HHS Secretary and the Centers for Medicare and Medicaid Services (CMS) to formally define the new requirements along with any applicable “criteria, standards, and procedures” that state Medicaid agencies may need to verify compliance or address noncompliance. Section 1902(xx) of the Social Security Act, as enacted by H.R. 1, imposes work requirements for qualifying adults enrolled under the Affordable Care Act’s (ACA) Medicaid expansion (i.e., nonpregnant individuals and those not included in explicitly exempted groups). To remain eligible, program participants must engage in qualifying activities — including paid work, community service, work program, educational enrollment, caregiving, or some combination thereof — for at least 80 hours per month or meet specified earnings thresholds. The IFC provides a comprehensive regulatory framework designed to help the states implement that statutory requirement. 

While the published rule is technically designated as “interim,” Congress explicitly noted in H.R. 1 that the rule would be exempted from standard notice-and-comment rules under the Administrative Procedure Act (APA). Accordingly, the IFC will become operative on its effective date, which coincides with the deadline for public comment: July 31, 2026. However, the published text may not be final, as CMS is actively soliciting public comment and has the right to revise the rule after its comment period expires.

The nationwide adoption of these community engagement requirements is expected to cause a substantial drop in Medicaid program enrollments. One analysis published in March 2026 estimated that between three and seven million people nationwide will lose access to Medicaid coverage in 2028, and that up to 37% of Medicaid beneficiaries who work may face disenrollment because they cannot fulfill documentation requirements or keep pace with more frequent eligibility rechecks. While the actual disenrollment impact remains to be seen, the practical and financial consequences for beneficiaries and health plans alike could be significant.

Interestingly, the IFC provides at least limited clarity to a question that plans have grappled with since last summer: the extent to which they can be involved in ensuring that members are aware of, and taking action in response to, new community engagement requirements. H.R. 1 explicitly prohibits state agencies from deputizing Medicaid managed care plans in their efforts to determine a member’s compliance with the community engagement requirements unless the plan has no “direct or indirect financial relationship” with the entity providing or arranging for that member’s Medicaid coverage. However, the IFC is less hardline in its messaging, encouraging plans to both “collaborate with States to determine what role they could play to support States’ efforts” to facilitate the new community engagement obligations and “help their enrollees meet community engagement obligations.”

A full recap of our analysis regarding the IFC’s guidance for managed care plans can be found in the following section; however, we strongly encourage concerned entities to contact their preferred Crowell lawyer for assistance navigating the line between “supporting states” and adhering to H.R. 1’s statutory prohibitions.

Takeaways for Medicaid Managed Care Plans

• • Plans — along with any other contractor financially affiliated with the plan — are barred from deciding whether members satisfy the community engagement requirement. This prohibition is referenced in H.R. 1 and implemented through an amendment to 42 CFR § 438.58 as a safeguard against potential conflicts of interest on the part of entities that have a financial relationship with enrollees.
  • States have the option, but are under no obligation, to involve managed care plans in delivering community engagement outreach to their members. If a state chooses to do so, the state retains full control over the scope and substance of that outreach, including which members receive communications, how often, and what those communications must say. Importantly, any outreach a plan delivers must be provided through supplemental channels (e.g., digital messaging or telephone communications) and does not relieve the state of its separate obligation to furnish each member with a primary notice by mail or preferred electronic format.
  • Managed care plans are permitted to play a role in the community engagement process, subject to state permission and oversight.  The rule specifically mentions the following as activities a plan could potentially engage in:
    • Conducting outreach and educating enrollees about the community engagement requirement
    • Sharing enrollee data with states (e.g., medically frail status, substance use treatment participation) to help states make accurate eligibility determinations
    • Referring enrollees to qualifying work programs, such as those administered at American Job Centers
    • Providing education and support services (e.g., work program appointment preparation) on a voluntary basis
  • Even if the state utilizes managed care plans to play a role in the community engagement process, the rule makes it clear that there continue to be limits on how plans can capture or receive credit for expenses associated with these activities. For example, costs for community engagement-related activities generally cannot be included in the non-benefit component of capitation rates; however, if plans voluntarily provide services qualifying as “value-added services” under applicable regulations, those costs may be included in the medical loss ratio (MLR) numerator.
  • Plans may not be tasked with gathering or monitoring information about members’ day-to-day compliance-related activities, as those functions lie outside the category of activities that a managed care plan may be contracted to perform or lawfully funded through capitation payments. States may not delegate this type of member-activity information-gathering to plans, regardless of whether the plan is otherwise involved in outreach efforts.
  • Plans are not authorized to send members official notices informing them that they are out of compliance with the program's participation conditions. That function falls outside the scope of activities that may be delegated under a managed care contract or funded through capitation payments, and may not be assigned to a plan, even when the plan is otherwise performing a supplemental outreach role.
  • The regulations do not permit “retroactive” cessation of coverage pending verification of continuing eligibility. Section 435.558(a)(3) specifically provides that states must continue to furnish Medicaid coverage to enrolled beneficiaries until an individual is determined ineligible, consistent with existing regulations (§ 435.930(b)). States cannot terminate coverage during the 30-calendar day response period to a required notice of noncompliance until the state determines that the individual is ineligible. If the individual fails to make a satisfactory showing during the 30-calendar day period, the state must disenroll the beneficiary from coverage no later than the end of the month following the month in which the 30-calendar day period ends.
  • The regulation does not change existing requirements related to an individual’s ability to reapply for coverage. The regulation (as well as the statute) does not permit states to impose any restriction on an applicable individual’s ability to re-apply for coverage or their ability to receive coverage if determined eligible upon reapplication based on the applicable individual’s prior denial of eligibility or disenrollment for noncompliance under § 435.558.

Next Steps and Recommendations

Crowell & Moring is prepared to help health plan operators and other entities active in the Medicaid ecosystem draft public comments, gain a better understanding of the IFC’s implications, or otherwise prepare for its impact. We strongly encourage interested organizations to reach out to their preferred Crowell lawyer or any author of this client alert for personalized guidance.