How states are preparing for Medicaid eligibility changes

States have less than five months to comply with recent changes to Medicaid’s eligibility requirements that go into effect next year, and they’re turning to various policy and legislative initiatives to get the job done. 

On Jan. 1, 2027, Medicaid enrollment will look different for millions of Americans. Under President Donald Trump’s H.R. 1 and final interim rules issued by the Centers for Medicare and Medicaid Services in June, enrollees face more stringent work and community engagement requirements. 

The interim final rules stipulate that certain enrollees aged 19 to 64 years must participate in at least 80 monthly hours of an education program, employment or volunteer service. Enrollees may be exempt from such activities due to specific life conditions, such as pregnancy or holding a veteran status, or their compliance with other assistance programs like Supplemental Nutrition Assistance Program. 

While the long-awaited final guidance largely upholds HR 1’s original statute, it introduced stipulations that many states had not been preparing for as they have rolled out system and operational changes since its passage last July, said Kathryn Costanza, a fellow at the National Conference of State Legislatures, during a panel at the NCSL 2026 Legislative Summit in Chicago last week.

As an example, she pointed to the medical frailty metric. Based on the original H.R. 1 statute, several states anticipated that medical frailty would be an automatic exemption. However, the final guidance now requires that states and Medicaid enrollees determine that the beneficiary not only qualifies for a medical frailty exemption but also that their medical condition prevents them from participating in work and community engagement requirements. 

“States are running at breakneck speeds to get this [work] done,” Costanza said, particularly as “the accuracy of state implementation of [the federal] eligibility changes will impact state Medicaid payment error rates.”

Under HR 1, states are also subject to federal fund recoupments or reductions if their error rate exceeds 3%, beginning in fiscal 2030. The average improper payment rate across 17 states was 6% in 2025, totaling $38 billion, according to CMS.

Arkansas turns to data to boost eligibility and compliance

Arkansas has adopted a soft launch approach to using data to inform its H.R. 1 implementation, Janet Mann, Arkansas’ Medicaid director and secretary of the Arkansas Department of Health and Human Services, said during the panel. 

In the state, an estimated 710,000 people, including children, were enrolled Medicaid recipients as of March, and 210,000 were enrolled in the state’s Medicaid expansion program ARHOME, according to the Arkansas Advocate.

Beginning July 1, the Arkansas Department of Human Services quietly started implementing automated processes to determine if current Medicaid recipients are exempt from or meeting the new work and community engagement requirements, Mann said. 

To review and verify eligibility for those individuals, “we are very focused on data matches,” she said. The Arkansas DHS is using data across state agencies, such as wage data, medical claims and administrative records from other programs like Supplemental Nutrition Assistance Program, among others. 

Until the Jan. 1 deadline, any Medicaid enrollees who do not satisfy the work and community engagement requirements will be alerted by the state via notices, emails and texts so they can “course correct” to demonstrate their compliance, Mann explained. 

New York looks to existing infrastructure to carry out new work

In New York, leaders’ priority is to “leverage our existing state health infrastructure [because] we do have a robust state health information network,” said Amir Bassiri, deputy commissioner of the Office of Health Insurance Programs and Medicaid director at the New York Department of Health. 

Officials are using the state’s health plan marketplace — NY State of Health — to share resources and tools to assist staff and enrollees as they undergo eligibility redeterminations and work requirement compliance checks. 

The NY State of Health released a communications toolkit late last month to help health insurance participants better understand new and ongoing changes to the Medicaid policy and program that could impact their coverage. The marketplace also launched an income verification tool through which residents can upload their job or payroll documents for evaluation. 

The state Department of Health is also developing guidelines on artificial intelligence that could help officials identify where the tech could be used for Medicaid eligibility and compliance processes, Bassiri said. 

“In these early stages, and especially before we go live with working community engagement requirements, we're not leveraging some new artificial intelligence right now,” he said, explaining that “there's just not enough time, and we don't see the immediate use cases upfront [for] eligibility determination yet.”

Legislation as a lever to comply with H.R. 1

Several states have also recently passed laws aimed at supporting agencies’ and officials’ efforts to comply with H.R. 1 eligibility implementation. 

Kentucky lawmakers passed a bill in April that requires certain state agencies to enter data-sharing agreements to enable data-driven eligibility redeterminations. The Kentucky Department for Medicaid Services, for instance, must share certain death-related data with the Social Security Administration to receive data on at least a quarterly basis, according to the bill. 

Utah Gov. Spencer Cox, a Republican, signed a similar law in March to create data verification standards for the state’s Department of Health and Human Services as the agency conducts eligibility determinations. DHHS, for instance, is required to verify an enrollee’s compliance with work requirements using state wage data, Department of Workforce Services records or documentation from education or training programs. DHHS must also cross-check enrollee information against federal databases, such as the Systematic Alien Verification for Entitlements

program. 

In Iowa, lawmakers passed a bill last year that, in part, created an information technology fund that aims to finance system modernization for public benefit systems in the state. 

Failure to comply: What’s at stake

Without quick action from states, millions of Americans could lose coverage to critical healthcare and treatment, Costanza said. 

The Congressional Budget Office projects that the number of uninsured people could skyrocket to 7.5 million in 2034 due to budget cuts to programs like Medicaid and the Children's Health Insurance Program.

Loss of coverage can also lead to an increase in uncompensated healthcare or treatment, the delay of care due to high costs or administrative churn when people re-enroll in Medicaid after temporarily losing insurance, Costanza explained.