We’re halfway through 2026, with six months until states are required to implement the One Big Beautiful Bill Act (OBBBA) and its related regulations. Individual states, however, are reacting differently to the law’s significant impact on Medicaid.
Last week, a coalition of 25 Democratic-led states sued the Trump Administration over its OBBBA Medicaid work requirement rules, specifically as they were outlined in recently published Centers for Medicare & Medicaid Services (CMS) regulations. At the center of the lawsuit is the Administration’s definition of the term “medically frail individuals” who may qualify for exemptions from work requirements.
As this audience is aware, the OBBBA requires Medicaid beneficiaries to work 80 hours a month, across the 40 states that expanded Medicaid under the Patient Protection and Affordable Care Act (PPACA). States must implement the requirement by Jan. 1, 2027.
The 80-hour requirement applies to all beneficiaries, with a notable exception, which is what makes up much of the chatter around CMS’s recent final rule.
In CMS’s rule, the exception for individuals who are considered “medically frail” is tied to whether a person has the ability to work. So, beneficiaries who may meet the exception will have to prove more than just that they have a serious or complex qualifying medical condition – they’ll also have to prove they actually can’t work.
This definition of medical frailty is much stricter than what was expected, certainly stricter than what the suing states expected, and proponents are arguing that not only will this be a difficult burden for beneficiaries to prove, it will also be a difficult lift for the states to document and administer.
In the lawsuit, the states argue that the exemption standards fail to reflect Congress’s intent when the legislation was enacted, and that the restrictive criteria could result in many vulnerable Medicaid beneficiaries losing coverage, even though they face significant health challenges that make it tricky to meet work requirements.
State officials further contend that coverage losses could increase providers’ uncompensated care costs while placing additional financial strain on state Medicaid programs.
Meanwhile, in other states, implementation of the work requirements is moving forward. Montana recently became the second state, following Nebraska, to begin implementation ahead of the 2027 federal deadline.
The outcome of the lawsuit could have far-reaching implications. A ruling in favor of the states could require revisions to the exemption criteria or delay broader implementation. If the Administration prevails, more states may accelerate their own work requirement programs.
It will be an interesting case to watch, especially in light of the U.S. Supreme Court’s 2024 Loper-Bright decision, which reversed a long-held precedent that deferred to a federal agency’s interpretation of statutes. The decision was expected to weaken agencies and regulatory challenges. However, healthcare policy has generally been spared any direct impacts. The states’ case here may test CMS’s power in a post-Loper-Bright world.
Adding another dimension to this policy conversation is the influence of the Paragon Health Institute, a conservative think tank that continues to actively shape Republican healthcare proposals. According to reports, the organization is encouraging the Administration and congressional Republicans to pursue even more major reductions in federal healthcare spending, above and beyond the Medicaid cuts in the OBBBA.
Among the policies reportedly under consideration are Medicare reforms, PPACA changes, insurance tax revisions, and changes to the 340B Drug Pricing Program. Paragon argues that current federal healthcare programs contribute to the healthcare affordability problem, while critics warn that substantial spending reductions could limit access to care for vulnerable populations.
Taken together, these developments illustrate how there’s never a dull moment in healthcare policy. For providers, payers, and patients alike, the months ahead will likely bring continued uncertainty as these debates shape the direction of the nation’s healthcare system and Congress.
Reference Material
- Dems sue to kill Medicaid work requirements regulation
- States sue Trump administration over ‘frail’ Medicaid work requirement exemption
- Montana doubles down on summer launch of Medicaid work requirements
- GOP think tank pushes heavy health spending cuts
