Special Edition: The Federal Community Engagement Interim Final Rule – Findings and Considerations for States

The Federal Community Engagement Interim Final Rule provides States More Direction but Also Policy Curveballs 

As states undertake the challenge of implementing the mandatory Medicaid community engagement requirement under H.R. 1 – along with a number of other provisions going into effect by January 1, 2027 – they have been eagerly awaiting more formal guidance from the Centers for Medicare and Medicaid Services (CMS). On the June 1st deadline set by H.R. 1, CMS released the Interim Final Rule: Medicaid Program; Community Engagement Requirement for Certain Individuals. The rule includes detailed policy guidance that states have been seeking, as well as outlining areas of continued state flexibility; however, it also contains curveballs and additional challenges – including in regards to medical frailty and attestations – with which states now need to contend. 

As an Interim Final Rule with Comment Period (IFC), the rule goes into effect July 31, 2026, while CMS is also accepting comments through that date.

PCG subject matter experts have outlined new information states should be aware of as they review the IFC to adjust and finalize their implementation approaches and consider submitting comments, as well as highlighting some key activities for the next 30, 60 and 90 days. Please click below for a reference tool including a full summary of the IFC and an a timeline of priority action items for states, and read below for key considerations for states.

 

Background 

Starting on January 1, 2027, many individuals in the Medicaid Expansion population will be required to demonstrate “community engagement” as a condition of Medicaid eligibility. New applicants must demonstrate community engagement for between one and three consecutive months at the time of application and existing enrollees must demonstrate community engagement for one or more months at each redetermination. Nebraska has already implemented this requirement, and H.R. 1 technically provides for states to seek good faith exemptions, though the administration has indicated a lack of intent to provide such flexibility.  

A range of activities can be used to demonstrate community engagement including: 

• • Work; 

• • Community service; 

• • Participation in a work program; and/or 

• • Participation in an educational program. 

In general, the time commitment threshold is 80 hours per month, but compliance can also be determined by income and there are special rules for seasonal workers. 

Individuals can be exempt from the requirement in one of three ways: 

• • Specified Exclusions – Individuals are not considered part of the applicable population if these circumstances exist at application or redetermination: being a former foster youth under age 26; being a Native American; being a parent, guardian, caretaker relative, or caregiver for a dependent child under age 13 or a disabled individual; being a disabled veteran; being medically frail (within defined categories); complying with the TANF or SNAP work requirement; participating in a drug addiction or alcoholic treatment and rehabilitation program; being an inmate of a public institution; or being pregnant or entitled to postpartum medical assistance. 

• • Mandatory Exceptions – States must deem applicable individuals to satisfy community engagement for the month(s) in the review period in which an individual was: under 19; eligible for Medicare; categorically eligible for Medicaid; or an inmate of a public institution over the prior three months. 

• • Optional Exceptions for Short-Term Hardship Events – States may choose to deem applicable individuals to satisfy community engagement for the month(s) in the review period a short-term hardship event applies, including: receiving inpatient services or outpatient services of a similar acuity or the individual or a dependent must travel for health care (both of which must be requested by the individual); and living in a location where there is a disaster or emergency order (must be effectuated by the state) or a high unemployment rate (must be requested by the state). 

States must establish processes to collect and use reliable information available to the state (“reliable available information”) to verify compliance with community engagement requirements, deemed compliance, or excepted status, without requiring individuals to submit additional information where possible.  

States will be required to provide notice of community engagement requirements to applicable individuals at least three months prior to the state’s implementation date plus the number of months of required demonstrated community engagement. Notices must explain how to comply with community engagement requirements, consequences of noncompliance, and how individuals should report status changes that may impact exception eligibility and specified excluded individual status.  

States are also required to notify individuals if they are out of compliance with community engagement requirements, including how to demonstrate compliance or excluded status and how to reapply for Medicaid coverage. Beginning on the date the notice of noncompliance is received, individuals will have 30 days during which to demonstrate compliance with or exclusion from community engagement requirements (individuals will remain enrolled in Medicaid during this time). 

Notable Policy Changes in the Interim Final Rule and Issues States are Grappling With  

Medical Frailty Two-Part Test 

Under H.R. 1, individuals who are medically frail are excluded from the population subject to community engagement requirements. While H.R. 1 outlined the types of conditions that otherwise applicable individuals must have to qualify for the medical frailty exclusion, CMS threw states a major curveball when it declared that having one of those conditions is not sufficient on its own for determining medical frailty. Under the IFC, states must create a list of specific conditions/codes (only within the categories listed in H.R. 1) that could trigger a medical frailty exclusion. However, in order to qualify for the exclusion, an individual must not only have a physical or behavioral health condition on the state list or otherwise in one of the H.R. 1 categories; that condition must also significantly impair that specific individual’s ability to comply with the community engagement requirements. Determinations cannot be made based on diagnosis alone; nor can the state’s diagnosis/code list be exclusionary. This means that states will need to have a manner of determining the severity of a health condition such as through the use of an acuity tool, claims and utilization data, or on the basis of special medical needs. 

Varying Rules and Timelines for Verification and Use of Attestations 

When no reliable information is available to the state to verify compliance or deemed compliance with, or exclusion from, community engagement requirements or available data conflicts with information provided by the individual or on their behalf, the state must seek additional information from the individual. While not addressed in H.R. 1, states were aware that there would likely be an opportunity to verify via attestations at the beginning of the roll-out of this new requirement. The IFC confirmed that option; however, with a more complicated timeline than states may have been prepared for. 

In general,  

• • Before January 1, 2028, the state may accept other information, including a statement which reasonably explains the discrepancy, in lieu of requiring documentation for all verifications. 

• • Beginning on January 1, 2028, the state must require documentation whenever documentation is reasonably available. 

However, a special accommodation is made for verifying medical frailty – possibly in light of the more complicated required analysis noted above. For verifying medical frailty: 

• • Before January 1, 2028, the state may accept other information, including a statement which reasonably explains the discrepancy, in lieu of requiring documentation for all verifications. 

• • Beginning on January 1, 2028, the state must generally require documentation whenever documentation is reasonably available, except that it can again accept an attestation in lieu of documentation one additional time during the beneficiary’s period of enrollment (which CMS defines in the rule as a continuous span of Medicaid coverage without disenrollment, even if the individual moves across eligibility groups or has multiple renewals or redeterminations). 

Further complicating this bifurcated treatment of attestations, is the timeline ramifications. The verification cadence is also different for medical frailty than other exclusions, exceptions, and qualifying events. Generally, all of these factors must be reverified at each application and redetermination (i.e., at least every six months); however, excluded status based on medical frailty and other special medical needs must be re-verified at least every twelve months. There is a further exception to the baseline rule, however: starting in 2028, an individual whose excluded status based on medical frailty was verified using an attested statement must have their excluded status re-verified by the state at their next redetermination (six months later) using reliable available information or documentation. Once an individual’s medical frailty has been verified using reliable available information or documentation, medical frailty can again be reverified at least every 12 months. States will have to implement a more complex system for implementing these bifurcated verification rules.

Unexpected Impact on Presumptive Eligibility 

Also new for states is that community engagement will need to be confirmed during the presumptive eligibility process for applicable enrollees. Assessing whether an individual meets the requirements or is excluded or excepted can be done through attestations. This adds a new element to what is supposed to be an expedited process, which will require states to update their processes and training for presumptive eligibility. 

These changes come as states have just over six months to complete implementation of this significant policy change with major operations ramifications. While the IFC restated the opportunity for states to seek temporary exemptions from (or extensions of) the implementation requirement by demonstrating a need for more time to implement despite a good faith effort and active work toward compliance, as noted above, the administration has stated that it does not intend to approve such requests. 

Other Key Guidance in the Interim Final Rule 

Qualifying Activities 

The IFC includes significant guidance about what is considered a qualifying activity (QA) that can satisfy the community engagement requirement, including noting: 

• • States must make all QAs outlined in H.R. 1 and the IFC available; 

• • In addition to work for pay, work can include that done in exchange for goods and services as well as unpaid work, such as an internship or unpaid work to benefit an individual (which would not qualify as community service).  

• • Community service includes voluntary and mandated activities through a structured program under a public or nonprofit organization and for the direct benefit of the community; it does not include partisan activities. States will need to have a process to determine what qualifies as community service and to verify activities and hours. 

• • The IFC outlines the specific work programs that qualify: 

• • • Those under Title I of the Workforce Innovation and Opportunity Act (WIOA)  

• • • Those under Section 236 of the Trade Act of 1974 (19 U.S.C. 2296) 

• • • A program of employment and training operated or supervised by a state or political subdivision of a state; these programs must State standards and can include a program under section 6(d)(4) of the Food and Nutrition Act of 2008 (7 U.S.C. 2015(d)(4)), other than a supervised job search program or job search training program

• • • A program of employment and training for veterans operated by the U.S. Department of Labor or the U.S. Department of Veterans Affairs (VA), and approved by the Secretary of the U.S. Department of Agriculture (USDA); and

• • • A workforce partnership under section 6(d)(4)(N) of the Food and Nutrition Act of 2008

• • • While job search training or activities can be included, they must comprise less than half of the required hours. And, once again, states must verify the activities and hours

• • In addition to the education programs recognized in H.R. 1, the IFC notes that attending high school and state-approved GED programs of study also count. Half-time enrollment is determined by the institution and, if the person participates less than half-time, hours (to be considered in combination with other activities) are calculated based on a formula for credit hours (1 credit hours = 3 hours x 4.33 weeks per month) or, if the program does not use credit hours, the actual hours spent in classes and educational activities. The IFC also notes that enrollment continues through normal periods of breaks, including between educational programs (i.e, high school and college). 

• • Community engagement can be determined for seasonal and other workers based on wage – in which case, MAGI-based income during the review period should be considered based on the standard Federal minimum wage; it includes calculating hours that are fewer than 80 per month to consider in combination with other activities. 

Other Specified Exclusions 

In addition to the new information related to the medical frailty specified exclusion above, the IFC provides significant information about how to define other specified exclusions, including: 

• • While most of these exclusions can change month to month, Native Americans only need to be verified once. 

• • Former Foster Children under age 26 includes those who were foster children in other states for this purposes. 

• • Definitions are provided for “parent”, “guardian”, “dependent”, “caretaker relative”, and “family caregiver”. Importantly, the parent of family caregiver need not reside with the child or disabled individual or be the primary caregiver as long as they provide some care, and there can be multiple individuals providing care for the same person that qualify for this exclusion. 

• • Applicable drug and alcoholic treatment programs are defined but states must determine which specific programs meet the definition and a minimum time commitment standard. 

Mandatory Exceptions 

The IFC notes that exceptions in this category are available when the criteria applies within one or more months in the review period, even if for just part of a month and even if the criteria no longer applies at the time of application or redetermination. If the state elects a review period of more than one month, it is possible that a person could have an exception for some of the months and be required to demonstrate community engagement for the remaining months. 

Optional Exceptions for Short-Term Hardship Events 

The IFC reiterates the state option of whether to elect (via a Medicaid State Plan Amendment) these optional exceptions; however, if a state makes the election, it must allow exceptions for all of the short-term hardship events included in H.R. 1. There is a caveat, however; because a state must effectuate exceptions based on the existence of a declared emergency or disaster and must seek approval to provide exceptions based on a high unemployment rate, a state could elect not to do so and then those events would not trigger exceptions. Similar to mandatory exceptions, these are based on the existence of these events month-by-month during the review period and, as such, if the state review period is more than one month, a person could have an exception for some of the months while being required to demonstrate community engagement for the remaining months. States will need to develop a process for making hardship determinations; CMS recommends modelling such a process on similar processes related to estate recovery, asset transfer, and trust rules. 

• • CMS expanded upon the H.R. 1 list of applicable inpatient facilities to include critical access hospitals, emergency hospitals, IMDs, and other facilities that are not covered by Medicaid but are recognized by the state. The IFC also defines applicable outpatient services to include those that, but for the receipt of such services, the individual would likely receive services in one of the listed inpatient facilities. The state can choose to make categorical and/or individual evaluations regarding such outpatient services

• • The IFC notes that a hardship event triggered by an emergency or disaster declaration could extend beyond the declaration period itself if the impact on community engagement continues

• • Unemployment rate is generally based on Bureau of Labor Statistics data, but another reliable sources can be submitted if that data is not up to date

• • States must define “community” and “extended period of time” for purposes of travel for health care, and extended period of time cannot be required to be a month or more. The IFC clarifies that the applicable individual is not required to travel with a dependent that needs to travel outside of their community for health care to qualify for the exception; but that person’s ability to comply with community engagement requirements must be significantly impacted by their dependent’s travel (and how they are supporting it) during the month(s) of travel

Verification 

As noted above, states must use reliable available information to verify compliance with community engagement requirements, deemed compliance, or excepted status, without requiring individuals to submit additional information where possible. CMS defines reliable available information as any data the state has or reasonably should have access to, including approved electronic data sources, data from other states or local agencies, federal data sources via the federal data services hub, state eligibility systems and case records, payroll and employment data, and claims and encounter data from the past 12 months.  

The IFC notes that states can only request additional information to verify compliance, deemed compliance, or exclusion and initiate non-compliance procedures if reliable available information cannot verify compliance or specified excluded status. States are required to accept information other than documentation if documentation is not available, and states must accept submission via multiple modalities. The rule specifies that states may not deny or terminate Medicaid coverage solely due to an individual’s inability to provide documentation, and before denying or terminating coverage, the state must provide the individual with an opportunity to submit information and follow notice and fair process requirements.  

States have the option to verify compliance between renewals, in which case states must confirm the individual is not a specified excluded individual and verify community engagement compliance using all reliable available information before requesting additional information. States may not verify specified excluded individual status between renewals unless new information comes to light suggesting a change in circumstances. 

With respect to mandatory exceptions, states are required to use reliable available information first to verify excepted status before requesting documentation or other information from the individual. The same goes for short-term hardship exceptions, with the exception of short-term hardship based on declared disasters and emergencies and federally approved unemployment-based hardship, which will be granted automatically – states may not request any verification with respect to these situations from individuals. However, states will be required to store and produce for CMS records supporting verification of emergencies, disasters, or high unemployment rates.  

Noncompliance and Notice  

A state will be considered unable to verify compliance, and must notify individuals of noncompliance, when: 

• • At application, after reviewing application information and all reliable available information, the state still cannot confirm the required months of community engagement compliance;  

• • At renewal when reliable available more information is insufficient, the renewal form is not returned, or the information returned is insufficient for verification; 

• • During more frequent (optional) verifications when reliable available information is insufficient, or requested follow-up information is not returned or insufficient. 

The notice of noncompliance must clearly explain how to demonstrate compliance with community engagement or that community engagement requirements do not apply to the individual, the 30-day submission deadline, modalities of submission, consequences of non-response, instructions on how to reapply of coverage is lost, and information on short-term hardship exceptions (if applicable). Notice of noncompliance will be presumed received five days after mailing, unless the individual can demonstrate the notice was not received. If the individual does not respond adequately within the 30-day window, the state must evaluate all other Medicaid eligibility pathways and potential eligibility for other insurance affordability programs before denying or terminating coverage. States must also provide individuals losing coverage with notice explaining that they failed to demonstrate compliance with community engagement requirements.  

Outreach 

In addition to providing advance notice of community engagement requirements, states must provide: 

• • Notice at enrollment for newly enrolled individuals between initial notice and implementation of community engagement requirements; and 

• • Periodic outreach during application, renewal, or change in circumstances; when the state elects a short-term hardship exception and activates a hardship event; and when sending advance notice of reductions in beneficiaries’ eligibility, such as loss of specified excluded individual status or expiration of a short-term hardship  

Notices must be sent via regular mail, or electronic delivery, and via at least one additional method, such as via telephone or text message. Importantly, both modes of notice delivery may not be via an individual’s electronic account. States may also combine notices with eligibility determinations or other routine communications and work with Medicaid Managed Care Organizations “MCO” to conduct outreach. 

Monitoring and Role of Managed Care Organizations 

Finally, the IFC sets data submission requirements for the state, which will be done via reporting to allow CMS to monitor the implementation and impact of community engagement requirements, and the roles that MCOs can and cannot play in regards to this new requirement.