CMS issues rule for states on community engagement requirements
Updated June 30, 2026.
On June 1, 2026, CMS published an Interim Final Rule on how states should implement community engagement requirements, or work requirements, a central piece of H.R. 1, commonly known as the One Big Beautiful Bill Act, which was signed into law last summer. The full rule is several hundred pages long, but AOTA is working to analyze its provisions for any impacts on the occupational therapy profession. An Interim Final Rule is a federal regulation that takes effect upon publication, but also includes a public comment period.
As required by the law, the rule outlines that states that previously expanded Medicaid in accordance with the Affordable Care Act must require covered Medicaid beneficiaries age 19 to 64 to participate in at least 80 hours per month of work, school, job training, or volunteering to maintain their Medicaid eligibility. States must evaluate beneficiaries every 6 months (the previous requirement was every year) to ensure compliance and can use a variety of data sources. The rule also lays out a number of populations to which the requirement does not apply, including caregivers, disabled veterans, incarcerated or recently incarcerated individuals, and pregnant women. Under the law, another population that is exempt are individuals who are “medically frail or otherwise has special medical needs”, including individuals who are blind or disabled, have a substance use or disabling mental health disorder, a physical, intellectual, or developmental disability that impacts the performance of one or more activities of daily living, or have a serious or complex medical condition. (“Policy Cheat Sheet”, 2026). The rule includes detailed definitions of five exclusions under this "medically frail" exemption.
As states are required to begin implementing these community engagement requirements on January 1, 2027, this rulemaking has been eagerly anticipated by Medicaid officials for months. The rule appears to provide wide discretion for governments to define what conditions provide exclusion from the community engagement requirements under the "medically frail or otherwise has special medical needs" exemption. Agencies have spent millions of dollars working with software vendors and contractors to set up computer systems for tracking compliance, hiring and training staff to answer questions, and communicating the new requirements to beneficiaries (King, 2026).
On June 30, 2026, 25 states plus the District of Columbia filed a lawsuit challenging the interim final rule on several grounds. These include that the rule diverges from H.R. 1 and from guidance issued to the states by CMS and that the short timeline prescribed by H.R. 1 for states to implement community engagement requirements will be harmful and disruptive. The states are asking for the court to stay (or halt the adoption of) the rule while the case proceeds.
Stay tuned to AOTA’s website for more information about this sweeping new rule. Please direct any questions to AOTA State Affairs staff at state@aota.org.
Resources:
References:
Policy Cheat Sheet: A Summary of Federal Medicaid Work Requirements. (2026) Center for Health Care Strategies. https://www.chcs.org/resource/a-summary-of-national-medicaid-work-requirements/. Accessed June 4, 2026
King, R. and Ollstein, A.M. (2026, June 4) States balk at the high price of Medicaid work requirements amid budget crunch. Politico. https://tinyurl.com/y64n2393. Accessed June 4, 2026