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New federal Medicaid community engagement requirements, along with more frequent redetermination and a reduced retroactive eligibility timeframe, take effect January 1, 2027. These changes are reshaping state Medicaid policy agendas, budget decisions, and eligibility system design as states prepare to implement听federally mandated听work and听community engagement requirements for the Affordable Care Act (ACA) expansion population.听This blog addresses the forthcoming policy changes, key issues related to eligibility and information systems, and听timely听actions for state partners preparing to meet the new requirements.

Community engagement requirements听often听are听discussed听in broad terms: whether they encourage听self-sufficiency听or create barriers.听For state Medicaid agencies, managed care plans听(MCPs), and providers,听however,听the more听immediate and consequential question is operational:听Is the Medicaid program鈥攁cross eligibility systems, data flows, partner roles, and communications鈥攔eady听to administer these requirements without losing eligible people?听

Based on our work with states, Medicaid programs, and community partners, the answer is dependent on the approach to execution. Specifically, it hinges on how states prepare their systems and partners for compliance with community engagement requirements without placing undue burden or expectations on beneficiaries, government agencies, MCPs, and community partners.听

Federal听Context: Medicaid听Community听Engagement听Requirements听Beginning in 2027听

Under听,听states that extended听Medicaid听to听able鈥�bodied adults in the ACA Medicaid expansion population (up to 138听percent of the federal poverty level)听must:听

• Apply community engagement requirements to expansion adults, unless they qualify for an exemption听
• Conduct听eligibility redeterminations at least every听six听months听for these enrollees听
• Reduce retroactive coverage eligibility from听90听to听30 days听
• Verify听community engagement听or exemptions using available data sources听
• Enforce consequences for noncompliance beginning in 2027听

Forthcoming federal guidance and regulations will clarify key implementation details. In the interim, states are using the statutory framework to design the necessary policy changes. For example, many states will move beyond a simple 鈥渞equirement鈥� model toward support-oriented programs that make compliance achievable for enrollees, minimizes administrative churn, and leverages available data and information systems functionality to reduce compliance burden. In so doing, states need to use existing federal guidance to answer the following questions:听

• Who is in scope and who is听exempt听and听how听are听exemptions听verified听without creating new burdens听on听enrollees听and the people and systems that support them?听
• What counts as听a 鈥渜ualifying activity鈥� for compliance听with the community engagement听requirement听(e.g., education/training and caregiving)?听
• Which听data sources can听be听deemed听as听鈥渁uthoritative鈥澨齠or听verifying听compliance?听
• How听and when听will听beneficiaries be notified, supported, and given opportunities to听supply听missing information?听
• How听do they听track compliance with the community engagement听requirement听and听address听its听intended and unintended impacts?听
• How听do听the听verify eligibility听for new听applicants and what process听do they听use to听monitor听ongoing compliance for existing enrollees?听

Analyis and planning for听community听engagement听is underway now,听state by state, and will听determine听whether听the mandates听will听increase employment, education, and volunteerism听and yield the expected health听and听economic benefits听or drive avoidable coverage loss.听

From听Policy听Requirement听to Workable听Medicaid Community Engagement Implementation听

The听听touch multiple components of a Medicaid enterprise, including:听

• Eligibility and enrollment systems and renewal workflows听
• Data sources (wage databases, SNAP/TANF interfaces, workforce systems, education/training records)听
• Managed care member services听and,听potentially,听capitated听payments听
• All engagement with contact听centers听(e.g.,听phone, chat, text messaging,听email,听beneficiary portal, etc.)听
• Document processing听
• Notices, appeals, fair hearing processes, and case management听
• Reporting, audit trails, and quality assurance听

In other words,听the backend systems听that听support compliance with the community engagement听requirement听must be听designed and built听for real-world administration听and听meet oversight听requirements.听Backend system听readiness is听among听the most important operational听issues听for听expansion states, as it听will dictate the听overall timeline听and success in meeting Medicaid听leaders鈥櫶齡oals.听

How听Medicaid听MCPs听and Providers Will Support听Enrollees听

The Centers for Medicare听&听Medicaid Services (CMS)听collaborated听with听听to听meet听the compressed听community engagement听implementation timeline, the scale of system changes听required听across eligibility and verification workflows, and long-standing cost and capacity constraints.听States are being asked to implement听these听complex new听expectation听largely within听existing eligibility platforms, which听were听designed for purposes other than听continuous activity tracking or听cross-agency听data exchange.听

Although听these arrangements may improve affordability and speed, states must still assess whether听vendor-offered听solutions align with their specific policy choices, data sources, partner roles, and operational risk tolerance.听

Medicaid听MCPs听and听provider听groups,听including听hospitals and federally qualified health centers听(FQHCs),听will be on the front lines of enrollee retention.听These organizations听should听engage听with states听now听to ensure听systems and information flows听support their work. MCPs听should focus on听access to:听

• Timely actionable information听regarding听which听members are subject to the requirement听
• Visibility into exemption status and pending听verification听
• Clear rules and data feeds that support proactive outreach听
• Alignment on plan member communications听

Primary care providers, hospitals,听FQHCs,听and behavioral health providers听play听a critical role in听identifying听and supporting exemptions.听If the exemption听processes are slow, unclear, or burdensome, patients听with legitimate medical or functional limitations may lose听coverage听and providers听may听incur听increased uncompensated care听costs.听Providers should be听engaging states to solidify:听

• Streamlined, clinically grounded exemption processes听
• Clear guidance on documentation standards听
• Fast, predictable exemption determinations听
• Feedback loops when exemption requests are denied or incomplete听

Community engagement requirements听will听require coordination with nontraditional partners, such as:听

• Departments of Labor/Workforce听Development听
• Community colleges, adult education, and training programs听
• SNAP/TANF agencies (and their employment and training programs)听
• Community-based听and听faith-based organizations,听organizations听that听offer听volunteer and community service opportunities,听and local workforce boards听
• Employers, chambers, and sector-based workforce intermediaries听

These partners can become essential to making the policy workable for听enrollees,听but they often听have听timelines, data standards, funding streams, and performance incentives听that differ from听Medicaid鈥檚.听Partners should听be in conversation with states now about investments in a听cross-agency and听cross-sector听governance structure that answers practical questions听about the definitions, systems and workflows, and beneficiary experience.听

States听Should听Act Now听

A听real and preventable risk听is听embedded in the 2027 timeline: coverage听loss听among healthy, working adults who听remain听eligible but cannot navigate new processes.听States must look across every part of their Medicaid system, decide what they need each partner to do, and ensure those partners have the information, tools, and authority to act. Plans and providers must be clear听and听advocate for听what they need to prevent eligible individuals from听losing coverage.听

Handled well, this is an opportunity to modernize systems, strengthen听cross-sector听coordination,听and may听demonstrate听whether听community engagement can yield a net benefit to members鈥攏ot听just add steps to听maintaining听coverage.听

Connect with Us听

HMA听Medicaid experts听assist听Medicaid and state policymakers听with听the following:听

• Policy-to-operations design听
• Cross-agency governance and partner alignment听
• Information听systems听impact assessment, change planning,听testing听strategies听and readiness metrics听
• Scenario听planning and beneficiary impact analysis听
• Communications听and operational playbooks听
• Program听integrity, reporting, and audit support听

HMA contributors to this article include听Erin Dorrien,听Kaitlyn Feiock,听Andrea Maresca,听and听Juan Montanez.听

HMA Blog Series听

The听Health Management Associates听(HMA)听Connecting the Dots blog series brings our experts听together听to examine the major policy, program, and market forces shaping healthcare coverage, delivery systems, and financing in 2026. The posts look beyond individual changes听to听connect emerging developments across programs and markets to help leaders understand听飞丑补迟鈥檚听changing, why it matters, and how their decisions shape the path ahead.听This month our experts weigh in on preparations for Medicaid听Work and听Community Engagement Requirements.听听

As of March 15, 2026, most governors had released proposed budgets for state fiscal year (FY) 2027. In addition, several governors in states that enacted biennial budgets in 2025 have released supplemental proposals. These FY 2027 state budget proposals signal how governors are responding to Medicaid financing changes, provider tax phase downs, and new implementation costs created in the 听(P.L.听119-21,听OBBBA).听

Given the requirement enacted in OBBBA, this year鈥檚 state budgets are more than spending plans. They are critical policy tools governors will use to navigate changes in federal funding, new program requirements, and increasing pressures across Medicaid and broader healthcare markets.听

The FY 2027 budgets indicate how governors are attempting to balance competing imperatives: maintaining healthcare coverage and access, stabilizing provider networks, financing Medicaid obligations, and aligning state healthcare and health-related programs with new federal rules. Healthcare provider taxes, revised funding priorities, and targeted funding proposals are key levers in the process of balancing budgets.听

黑料网 Information Services (HMAIS)听has听published听its final听iteration of听the听听(subscriber access听required), which听examines听proposed听FY 2027听state budgets听(January 22, 2026,听A Look at Proposed State Fiscal Budgets).听Our March 2026听issuance听covers all proposed听FY听2027 budgets for non-biennial budget states and some supplemental budget proposals for听states that enacted听biennial听budgets in 2026.听Following听is a look at听key trends听in Medicaid proposals听and听some of the substantial budget proposals that are听discussed听within the report.听

Provider Taxes听and Medicaid Financing Under OBBBA听

One听notable听fiscal听federal听policy change听under OBBBA is the phase听down of the听Medicaid provider tax programs, a financing mechanism many states rely on to draw down federal matching funds and support provider payments. The federal law freezes existing provider tax programs, prohibits new ones, and requires Medicaid expansion states to phase down the minimum allowable tax rate from 6 to 3.5 percent by 2032.听

In addition,听OBBBA places new limits on听state-directed payments, capping them听at 100 percent of Medicare rates for expansion states and 110 percent for non-expansion states. Grandfathered payment arrangements will be phased down by 10 percent annually beginning in听2028.听

FY 2027听state听budget proposals highlight听how听these changes will have substantial听and long-term听fiscal听impacts, even if some effects are delayed.听Examples include:听

• Arizona听estimates听it will receive听$5.3 billion听less in federal support between听FY听2029 and 2033听as a result of听policy听changes.听
• California听projects that state expenditures for Medi-Cal will grow $2.4 billion in FY 2027, largely because the Medical Provider Interim Payment expires in FY 2026 and a decrease in managed care organization (MCO) tax revenue available to support the Medi-Cal program. Gov. Gavin Newsom鈥檚 proposed FY 2027 budget assumes a transition period for the decreased MCO tax through December 31, 2026.听
• Connecticut听Gov.听Ned Lamont鈥檚 proposed supplemental budget for the 2025鈥�27听fiscal biennium calls for reducing hospital provider taxes by $275 million. Connecticut increased supplemental payments and provider taxes during the 2025 legislative session, but the听governor鈥檚 proposal听would听reduce the听inpatient hospital听provider听tax听rate from听6听percent to 4.1 percent.听
• Illinois听projects听that most of the budgetary impacts will begin in听FY听2028,听with听federal听Medicaid support听reduced听by approximately听$2.8 billion听annually by听FY听2031.听
• New York听Gov.听Kathy Hochul鈥檚 budget听proposal updates the managed care tax听spending听plan听and听estimates the state will collect听$1.5 billion听fewer receipts than听anticipated听in fiscal 2027.听

Implementation Costs:听Staffing, Systems,听and Administrative Burden听

Along with the decreased federal funding, implementing OBBBA听carries significant administrative and operational costs, compounding pressure on state budgets.听

According to an听Associated Press听 of 25 state budget protections, states will need to spend up to $1 billion in federal and state funds on technology upgrades and additional staff to fully implement the Medicaid work and community engagement requirements. Many FY听2027 budgets reflect this reality, with new investments focused on expanding staffing capacity and modernizing eligibility and data systems. For example:

• 惭颈肠丑颈驳补苍鈥檚听proposed budget, for example, includes $186.6 million from the state听general听fund to fully implement听OBBBA, including $80.3 million in all funds to hire听additional听full-time听employees听who can听meet the increased workload.听
• Missouri听proposes听$294.6 million and dedicated staff members to听comply with听OBBBA.听
• Arizona听proposes a $14.4 million one-time investment and dedicated OBBBA implementation staff.听

Several听governors听also听propose investments to help beneficiaries remain enrolled amid more frequent eligibility checks and new requirements. For example:听

• Kentucky听proposes $35.6 million in听FY听2027 and $11 million in听FY听2028 to听modify听the Medicaid information technology systems and other administrative systems听to cover increased costs for the more frequent six-month eligibility redeterminations听and to implement the new community engagement and work requirements.听
• Rhode Island听proposes $32.7 million for technology modifications to the听RIBridges听software to听maintain听compliance听for听various health and human services programs to align with OBBBA.听

What to Watch: FY 2027 Budget Decisions and Medicaid Financing Risks听

Upcoming provider tax听phase听downs听and caps on听state-directed听payments constrain core funding tools just as implementation costs for staffing and systems are rising, forcing听difficult听decisions听about coverage, provider support, and administrative capacity. Providers face growing uncertainty as听tax supported听supplemental payments are reduced or restructured, with potential implications for cash flow, service availability, and network participation.听

Managed care plans, meanwhile, must navigate shifting rate development assumptions, changes in provider payment arrangements, and increased enrollment churn tied to eligibility and redetermination changes.听

While the timing and听magnitude听of听effects听vary, these proposals underscore that provider tax听and supplemental payment听changes are听more than听abstract听future concerns. They听already听are听shaping FY 2027 budget decisions and听long-term听Medicaid financing strategies.听

Most state听legislatures are still debating听their听spending plans, making it critical to听track which proposals are included in听FY听2027 budgets, which are听scaled back, and which are eliminated.听These听budget decisions will play听a central role听in听determining听market stability, access to care, and program sustainability in the years ahead.听

HMAIS听will听publish听additional听reports in the coming听months听summarizing each state鈥檚 enacted budget. The听first iteration听is听expected in听May听2026.听

Connect听with Us听

As the policy and funding landscapes continue to evolve, states and other stakeholders need to remain flexible. HMA brings the expertise, tools, and insights needed for stakeholders to stay on top of the rapidly changing environment. For questions or to connect with an HMA expert, contact听Andrea Maresca听and听Kathleen Nolan.听

The full report is available to HMAIS subscribers.听Questions can be directed to听Maddie听McCarthy.听