The New Medicaid Rule Went Final Thursday. It Adds a Test Congress Did Not Write. Twenty-Six States Are Suing.

The Centers for Medicare and Medicaid Services’ Interim Final Rule implementing Medicaid work requirements became final on July 31, 2026. The rule takes effect the same day public comments close. It requires states to condition Medicaid eligibility for non-disabled expansion adults - ages 19 to 64 - on demonstrating 80 hours per month of work, school, or community service starting January 1, 2027.

At the center of the legal challenge: the rule’s narrowed definition of who qualifies as “medically frail” and therefore exempt from work requirements. H.R. 1, the law Congress passed last year, listed five categories of individuals who would qualify - including people with serious or complex medical conditions. The CMS rule added a sixth requirement those categories do not include: proof that the condition “significantly impairs” the individual’s ability to comply.

What States Argue CMS Got Wrong

Twenty-six states plus the District of Columbia filed suit in late June in the U.S. District Court for the District of Massachusetts. Their core argument: CMS changed the exemption standard after states had already built implementation systems, trained staff, and allocated budgets based on the original guidance. Ohio’s Medicaid program, which had been planning its rollout for months, estimated that 315,000 Ohio Group VIII enrollees - roughly 40 percent of the entire expansion caseload - had already been assessed or flagged for assessment under the old guidance. The new standard requires those assessments to start over.

The lawsuit also argues the “significant impairment” test will cause eligible people with cancer, diabetes, heart disease, and serious mental illness to lose their exemption and ultimately lose coverage - not because they cannot comply, but because documenting the impairment standard requires medical evidence many people cannot easily obtain.

The August 31 Deadline and What It Locks In

States must notify Medicaid enrollees of the new medically frail standard by August 31, 2026. That gives states 31 days - from Thursday - to prepare and send notices explaining a standard that remains the subject of an active federal lawsuit. States that fail to meet the August 31 deadline face federal financial penalties.

The states filing the lawsuit have asked the court to block the contested provisions before August 31. The AMA filed a supporting brief on July 28. The court’s ruling on the preliminary injunction will determine whether states notify enrollees under the CMS rule or wait for the legal question to be resolved.

References: Five Hot Takes on CMS’s Interim Final Rule for Medicaid Community Engagement Requirements | CMS Issues Interim Final Rule Imposing Medicaid Work Requirements for Expansion Populations | Medical Frailty Rule Contravenes HR 1, Burdens the Health Care System | The Medical Frailty Exemption from Medicaid Work Requirements: Key Takeaways