On June 1, 2026, CMS released the interim final rule implementing the One Big Beautiful Bill Act’s (OB3) Medicaid “community engagement” requirement for the expansion population. Beginning in 2027, Medicaid coverage for millions of low‑income adults in the expansion population will be conditional on meeting work or work‑related criteria, which represents a significant shift in Medicaid eligibility and enrollment policy.
While CMS frames this as a workforce expansion and personal responsibility policy, the downstream effects will be felt acutely by hospitals and health systems through coverage losses and increased administrative burden, emergency department (ED) utilization, and financial pressure.
What Are the Medicaid Community Engagement Requirements?
Under the rule, most non‑disabled, non-pregnant Medicaid enrollees ages 19 to 64 must demonstrate at least 80 hours per month of qualifying “community engagement.” This includes paid work, job training, volunteering, education, or a combination of these activities. Alternatively, individuals can meet the requirement through income equivalent to 80 hours of minimum‑wage earnings. The look-back period will require enrollees to satisfy the work requirements for at least one, but not more than three consecutive months prior to the application or redetermination, providing states significant policy discretion.
States must verify compliance at application and during coverage redetermination, first relying on existing data sources and then, if necessary, requesting documentation. Individuals who cannot demonstrate compliance will receive a notice and have 30 days to respond before coverage can be terminated.
Which Medicaid Enrollees Are Required to Demonstrate Community Engagement?
The requirements primarily apply to the Medicaid expansion population—roughly 20 million adults across about 40 states and Washington, D.C.
However, the rule includes broad exclusions. Individuals are not subject to the requirement if they are caregivers for children or disabled individuals, medically frail, pregnant, participating in substance use treatment, certain veterans, Native Americans, or former foster youth. In addition, some individuals are automatically treated as compliant, including those under age 19 or enrolled in Medicare, and states may grant temporary hardship exceptions for events such as hospitalization, disasters, or high unemployment.
While these safeguards are meaningful, many require individuals to actively demonstrate eligibility, creating ongoing risk of administrative or procedural coverage churn and loss.
When Do Medicaid Community Engagement Requirements Take Effect?
The policy takes effect for Medicaid coverage beginning January 1, 2027, although states may implement it earlier.
Recognizing the complexity of building verification systems, CMS will allow states to request a temporary “good faith effort” exemption if they are not operationally ready. Initial exemptions are limited to up to six months, and exemptions cannot extend beyond December 31, 2028.
How Will Medicaid Community Engagement Requirements Affect Coverage?
Federal estimates indicate approximately 15% of affected enrollees are expected to be disenrolled, accounting for the impact of both failure to meet requirements and administrative barriers. CMS estimates this will result in 2.3 million fewer enrollees in 2027, rising to between 3.1 and 3.3 million annually thereafter. The agency estimates total federal savings over 10 years (2027 to 2036) of $350 million.
Not all individuals who lose Medicaid will obtain alternative coverage. Hospitals should expect a meaningful increase in the uninsured population, particularly among low‑income adults with unstable employment or documentation challenges.
What Are the Financial Implications for Hospitals?
The Medicaid community engagement requirements are expected to significantly affect the finances, operations, and care delivery of hospitals in the 40 expansion states and Washington, D.C.
Financially, hospitals likely will experience increased uncompensated care as Medicaid enrollment declines and more patients lose coverage. This may translate into higher levels of bad debt and financial assistance, particularly in emergency and inpatient settings where care must still be delivered. At the same time, reduced enrollment may weaken Medicaid revenue.
These pressures will be most acute for safety-net and rural hospitals with higher Medicaid exposure. Shifts in enrollment will also ripple into disproportionate share hospital (DSH) funding and potentially put eligibility for the 340B drug discount program in jeopardy. Increased coverage “churn”—patients cycling between insured and uninsured—will further complicate billing and create uncertainty around retroactive eligibility. This risk is amplified by the OB3 changes effective January 1, 2027, which reduce retroactive Medicaid coverage to one month for expansion populations and two months for traditional (non-expansion) populations.
Operationally, the requirements will add meaningful administrative burden. Although states determine eligibility, hospitals will increasingly serve as the front line for helping patients navigate compliance. Patient access teams will need to assess eligibility status and guide patients through requirements, while financial counselors and care coordinators will help patients document work activities or qualify for exemptions. Coordination with managed care organizations will intensify, and eligibility verification processes will become more complex, especially at intake and point of service.
At the same time, hospitals will need to strengthen financial assistance policies and processes. As more patients fall into coverage gaps, it will be critical to proactively identify those who qualify for other sources of coverage or financial assistance and connect them quickly. Streamlined screening, clearer eligibility criteria, and better integration of financial assistance into front-end workflows will be essential to support patients appropriately, help limit bad debt, and support tax-exempt status.
From a care delivery perspective, coverage instability is likely to increase delayed care, higher acuity at presentation, and avoidable ED use. Chronic disease management may suffer as patients cycle in and out of coverage, disrupting continuity.
To prepare, hospitals should invest in real-time eligibility tools and staff training, expand patient navigation support, strengthen financial assistance programs, partner with managed care and community organizations, model financial exposure, and enhance revenue cycle processes to manage churn and uninsured volumes.
How Forvis Mazars Can Help With Medicaid Eligibility Changes
For hospitals, the implications of Medicaid community engagement requirements are clear and far-reaching: higher uninsured rates, increased uncompensated care, greater operational burden, and more volatile payor mix. Organizations that proactively invest in eligibility support, patient engagement, and financial planning will be better positioned to mitigate the impact of this significant policy shift.
Our professionals at Forvis Mazars bring multidisciplinary experience across reimbursement, performance improvement, strategy, and compliance to help healthcare organizations understand and adapt operational workflows and team education to the impact of evolving Medicaid coverage policies. If you have questions about these policy changes and how they may affect your organization, please reach out to a professional on our team.