Medicaid Work Requirements and Six-Month Redeterminations: What Behavioral Health and SUD Providers Must Prepare Before 2027

Starting no later than January 1, 2027, adults ages 19 to 64 covered through Medicaid expansion must show 80 hours a month of work, community service, a work program or half-time school (or monthly income of at least $580) to get or keep Medicaid, and their eligibility will be renewed every six months instead of every 12. People with a substance use disorder (SUD), a disabling mental disorder or another qualifying condition are exempt as "medically frail," as are people participating in a qualifying drug or alcohol treatment program. CMS's interim final rule, in effect since July 31, 2026, adds that the condition must significantly impair the person's ability to comply, and 23 states and the District of Columbia are challenging that definition in federal court.

Because many behavioral health (BH) and SUD patients should qualify for an exemption, the main risk for providers is procedural. In Nebraska, the first state to enforce the requirement, 490 of the 533 renewal denials tied to it in July and August 2026 were for not returning requested information. Below: the rules as of early October 2026, then a six-step provider playbook.

What the law requires

Section 71119 of Public Law 119-21, signed July 4, 2025, added section 1902(xx) to the Social Security Act. It covers ACA expansion adults and similar adults ages 19 to 64 in section 1115 demonstrations that provide comparable coverage. KFF counts 43 states that must implement it, and CMS put adult group enrollment at roughly 20 million in fiscal year 2025.

At application, states check 1 to 3 consecutive months before the month of application; for enrollees, 1 or more months between renewals. In an early 2026 KFF survey, 36 of the 43 states planned a one-month look-back at application. Current enrollees are first checked at their first renewal initiated on or after the state's start date.

States must try to verify compliance or an exemption from data they hold (payroll, claims, encounter data) before asking the person. If they cannot, they send a notice of noncompliance with 30 calendar days to respond, and coverage continues meanwhile. If no showing is made, the state checks other bases of eligibility, then denies or disenrolls, with fair hearing rights. People can reapply anytime, but cannot fall back on subsidized Marketplace coverage.

Exemptions that matter for BH and SUD patients

Several groups of "specified excluded individuals" are outside the requirement entirely (the FAQ below lists them). Two categories in section 1902(xx)(9)(A)(ii) matter most for BH and SUD:

"(V) who is medically frail or otherwise has special medical needs (as defined by the Secretary), including an individual: (aa) who is blind or disabled (as defined in section 1614); (bb) with a substance use disorder; (cc) with a disabling mental disorder; (dd) with a physical, intellectual or developmental disability that significantly impairs their ability to perform 1 or more activities of daily living; or (ee) with a serious or complex medical condition"

"(VII) who is participating in a drug addiction or alcoholic treatment and rehabilitation program (as defined in section 3(h) of the Food and Nutrition Act of 2008)"

How CMS defined them

The interim final rule (91 FR 33348) defines a medically frail person at 42 CFR 435.554(c)(5) as someone "whose physical, mental, or other behavioral health condition significantly impairs the individual's ability to comply with the community engagement requirement." CMS says a person who can do 80 hours a month of qualifying activities despite their condition would not qualify.

• SUD: the rule covers a person "with a substance use disorder, excluding an individual in stable recovery (which means, an individual who is in recovery for 5 or more years)." CMS says this includes people not in active treatment and people in early or sustained recovery, and states must let people self-identify, including after a relapse.
• Disabling mental disorder: CMS listed examples, when disabling: schizophrenia, schizotypal disorder, delusional disorder, other non-mood psychotic disorders, moderate or severe bipolar disorder, major depressive disorder and panic disorder. A non-disabling disorder does not qualify, so outpatient mental health practices carry the most exposure.
• State lists: each state must keep an "auditable, justifiable" list of qualifying conditions and let people whose condition is not listed request consideration.
• Treatment programs: the cited definition covers programs run by a private nonprofit or a public community mental health center under part B of title XIX of the Public Health Service Act. States decide which programs qualify and may set a minimum time commitment. For-profit programs should ask how their state reads it; the medically frail SUD category is the broader route.

Also relevant: people released from incarceration within the prior three months are deemed compliant, and states may grant hardship exceptions, on request, for months with inpatient hospital, psychiatric or institution for mental diseases care.

How exemptions get verified

• States check data first, including claims "adjudicated in the preceding 12 months, including those that have been paid, pended or denied," and encounter data. For frailty, older information may not be used, and a lack of claims alone cannot defeat the exemption.
• Through December 31, 2027, states may accept documentation or a sworn statement. From January 1, 2028, a sworn statement can verify frailty only once per continuous enrollment, and frailty must be reverified at least every 12 months.
• States may accept documentation from physicians, nurse practitioners, physician assistants, psychologists, counselors and therapists, clinical social workers and other credentialed practitioners.

Nebraska, for example, scans ICD-10, CPT and HCPCS codes on claims about 90 days before eligibility ends; otherwise, the enrollee self-declares, naming the provider or facility.

Disclosing SUD treatment within Part 2 limits

On September 29, 2026, the HHS Office for Civil Rights issued guidance on when 42 CFR part 2 lets a state Medicaid agency use Part 2 records to verify an exclusion. There are two routes:

• Your TPO consent. If your program holds the patient's single consent for all future treatment, payment and health care operations uses and disclosures, and disclosed records to the agency under it (for example, on a claim) with a copy or clear explanation of the consent, the agency can later use them to verify the exclusion without another consent.
• The agency's own consent. Otherwise, the agency may obtain the patient's written consent meeting 42 CFR 2.31(a).

Either way, the records cannot be used against the patient in criminal, civil, administrative or legislative proceedings, including records a patient obtains and hands over directly. So: confirm Medicaid patients have a valid TPO consent on file, send the consent copy and Part 2 notice with disclosures, and give exemption letters to the patient unless a consent covers sending them to the agency. Our 42 CFR Part 2 guide and consent guide cover the details.

Six-month redeterminations and other eligibility changes

Six-month renewals (section 71107). For redeterminations scheduled on or after January 1, 2027, states must renew expansion adults every six months. CMS letter SMD #26-001 (March 6, 2026) says this applies whether or not the person is subject to the work requirement, with an exception for certain American Indians and Alaska Natives. Current enrollees move to the new cycle from early January 2027 or at their next renewal, depending on the state. Each renewal is another point where coverage can lapse.

Retroactive coverage (section 71112). For applications on or after January 1, 2027, coverage for expansion adults reaches back only to the month before application; other applicants get two months, down from three.

Cost sharing (section 71120). From October 1, 2028, states must impose cost sharing on expansion adults above the poverty line, up to $35 per service. Mental health, SUD and primary care services, and services at FQHCs, certified community behavioral health clinics and rural health clinics, are excluded.

Hospital presumptive eligibility for the adult group now includes an attestation about exclusion, exception or compliance.

What is decided and what is still pending

In Massachusetts v. Oz (D. Mass., No. 1:26-cv-12962), the states challenge the functional test in the medically frail definition, the 12-month look-back and a work condition on one hardship exception. On July 29, 2026, Judge Richard Stearns denied a preliminary injunction, said the ruling was "not a reflection or anticipation of its ultimate views on the merits," and set a schedule to reach the merits before January 1, 2027. Plan for the rule as written and watch the docket.

This article is general information, not legal advice. For questions about your obligations or a patient's eligibility, talk to counsel or your state Medicaid agency.

Timeline

What the first state's numbers show

Draft minutes of Nebraska's September 17, 2026 Medicaid Advisory Committee meeting report that in July and August 2026, 7,280 renewals needed a work requirement determination: 2,449 were approved for qualifying activities, 4,171 with an exemption (medically frail was the largest category, at 1,612), 127 with a hardship, and 533 were denied, 490 for not responding. The state called it too early for trends, but exemption was the most common outcome, and most losses were unanswered requests.

The provider playbook

1. Measure your exposure

1. Pull 12 months of paid Medicaid claims by patient, fee-for-service and each managed care plan.
2. Tag expansion adults from the eligibility category in eligibility responses or plan rosters.
3. Calculate their share of revenue by location and service line.
4. Sort them into likely exempt and documented, likely exempt but undocumented, and likely subject.
5. List patients with renewals in the first half of 2027.

2. Identify likely-exempt patients and document the clinical basis

Flag patients with an active SUD (in treatment or in recovery under five years), a disabling mental disorder, a recent inpatient stay, recent release from incarceration, pregnancy, or a child 13 or under at home. Then make sure the record shows:

• A specific, current diagnosis on every claim, including co-occurring conditions, because states read claims first.
• Functional impact on the ability to work, volunteer or attend school 80 hours a month, drawn from the medical necessity and ASAM assessments you already keep.
• Recovery status with dates, because CMS excludes stable recovery.
• Treatment participation: program, level of care, admission date, scheduled hours and attendance.

Document only what is clinically true: an exemption letter is a statement to a state agency. A short letter covers most requests:

[Date]. To: [State Medicaid agency]. Re: [Patient name], DOB [date], Medicaid ID [number]. I am [name, credentials, license number] at [program], where [patient] has received treatment since [date]. Diagnosis: [ICD-10 code, severity, date of current episode or recovery]. Treatment: [level of care, hours per week]. Functional impact: [how the condition limits work, volunteering or school]. [Only if supported:] In my clinical judgment, this condition significantly impairs [patient]'s ability to meet the Medicaid community engagement requirement. [If applicable:] [Patient] has participated in [program], a drug or alcohol treatment program, since [date]. [Signature, phone]

3. Help patients keep coverage

• Confirm mailing address, phone and email at every visit; notices go by mail and the response clock is 30 days.
• Ask patients to bring any Medicaid letter, and assign staff to help answer it within the week.
• Keep a 90-day renewal list and contact patients before their renewal month.
• If coverage ends for unreturned information, the state must reconsider without a new application if the information arrives within 90 days. Fair hearings and reapplication remain open.

4. Check eligibility before services

• Run a 270/271 or portal check at admission, at each level-of-care change, before authorization requests and in the renewal month, including mid-stay for residential and IOP episodes.
• Start Medicaid applications for uninsured patients on admission day, since retroactive coverage for expansion adults shrinks to one month in 2027.

5. Monitor denials and bad debt

Track monthly, by payer and location: eligibility denials in count and dollars, upcoming renewals, conversions to self-pay, and bad debt for former Medicaid patients. Before writing off, check whether reinstatement covers the gap. Our denial codes guide covers the full CARC set.

6. Plan revenue scenarios

CMS projects the requirement will cut Medicaid enrollment by 2.3 million in fiscal year 2027 and 3.1 to 3.3 million in later years, a combined disenrollment rate of about 15% of adult group enrollment, and calls the estimates uncertain. Treat that as a national anchor. Illustration, hypothetical program with $1.8 million a year in expansion-adult Medicaid revenue:

Programs whose expansion adults mostly have documented SUD and active treatment should sit lower; outpatient practices serving working adults with milder conditions, higher. Losses will arrive in waves as 2027 renewals come due.

Readiness checklist

• Confirm your state's start date, look-back, check frequency, hardship options and any good-faith delay request.
• Get the state's frailty condition list, treatment program definition and provider documentation process.
• Close documentation and diagnosis coding gaps for likely-exempt patients.
• Confirm TPO consents on file and adopt an exemption letter template.
• Update contact details at every visit and keep a 90-day renewal list.
• Report CARC 26, 27, 31 and 177 denials and self-pay conversions monthly.
• Revisit revenue scenarios after the court rules and your state publishes data.

How Adentris helps

Adentris does not determine Medicaid eligibility; it works on what providers control, the chart and the claim. It reviews every active chart, not a sample, against payer and regulatory rules before claims go out, including medical necessity, ASAM level of care, 42 CFR Part 2 and Medicaid documentation rules. Each finding cites the rule that fired, and Adentris drafts the correction for staff to approve. The diagnosis, functional and treatment documentation it checks is what an exemption letter draws on. It works on top of any EHR, connecting through its API or FHIR, HL7 feeds, an API our agents build where none exists, or the AI Web Agent, usually with no IT project on your side, and is typically live in about 30 days. At Resilient Recovery Treatment, a multi-site SUD network in Los Angeles, denials fell 62%.

To size your exposure first, start with the free revenue check: send 60 to 90 days of EOBs and denials and get a written report quantifying recoverable revenue, with ROI math and no commitment. To see it on your own charts, book a 30-minute call with our team.

Related reading

• Denial Codes in Behavioral Health: The CARCs That Cost BH and SUD Programs the Most
• Medical Necessity Documentation for Behavioral Health: What Payers Require
• In-House vs. Outsourced RCM for Behavioral Health: The 2026 Math

Sources

• Public Law 119-21, sections 71107, 71112, 71119 and 71120
• 7 U.S.C. 2012(h)
• CMS interim final rule, 91 FR 33348
• SMD #26-001 (March 6, 2026)
• HHS OCR press release (September 29, 2026)
• HHS OCR: Part 2 and the community engagement exclusion
• 42 CFR 2.31
• Massachusetts v. Oz, preliminary injunction order
• Massachusetts v. Oz docket
• Nebraska DHHS: work requirements
• Nebraska DHHS: frailty and SUD exemptions
• Nebraska MAC draft minutes
• KFF: early state policy decisions
• X12 claim adjustment reason codes

Frequently asked questions

When do Medicaid work requirements start?

No later than January 1, 2027, in states covering the ACA expansion group or a similar 1115 group. States may start earlier; Nebraska began May 1, 2026. Good-faith delays cannot run past December 31, 2028.

Who is exempt from Medicaid work requirements?

People who are medically frail or in a qualifying drug or alcohol treatment program, parents and caregivers of a child 13 or under or of a disabled individual, pregnant and postpartum individuals, American Indians and Alaska Natives, former foster youth, veterans with a total disability rating, people meeting TANF or SNAP work rules, and inmates.

Are people with a substance use disorder exempt from Medicaid work requirements?

The statute lists them as medically frail. CMS's rule requires the disorder to significantly impair the ability to comply and excludes people in recovery five or more years; that definition is being challenged in court. People in a qualifying treatment program are separately exempt.

What is the six-month Medicaid redetermination?

Section 71107 of Public Law 119-21 requires states to renew expansion adults every six months instead of every 12, starting with renewals scheduled on or after January 1, 2027, whether or not the person is subject to the work requirement.

Can a state Medicaid agency use 42 CFR Part 2 records to verify an exemption?

Yes, according to HHS OCR guidance of September 29, 2026, when the records reached the agency under the patient's consent for treatment, payment and health care operations, or when the agency obtains the patient's written consent.

What should behavioral health providers do now?

Measure expansion-adult revenue, document likely exemptions accurately, code complete diagnoses, confirm Part 2 consents, help patients answer notices, check eligibility and track eligibility denials monthly.