The Centers for Medicare & Medicaid Services announced Friday that it is offering states an optional “hold harmless” period through June 30, 2027, during which states that elect the option may suspend denials of eligibility and disenrollments when Medicaid applicants and beneficiaries do not demonstrate compliance with the program’s new work requirement, which CMS calls community engagement.
The requirement itself still takes effect on schedule. Beginning Jan. 1, 2027, certain Medicaid applicants and beneficiaries ages 19 to 64 must meet the statutory work requirement, unless excluded, according to CMS. The agency’s June 2026 interim final rule outlines qualifying activities, including 80 hours per month of work, community service or participation in a work program; enrollment in an educational program at least half-time; a combination of qualifying activities totaling at least 80 hours per month; or meeting a specified monthly income threshold.
States that use the hold harmless period will still assess whether individuals meet the requirement or are excluded from it, CMS said. In its letter, CMS stated: “States will not be permitted to use the hold harmless period unless they assess whether individuals meet the requirement (including through deemed compliance) or are excluded from it, for all relevant applications received or renewals initiated during the hold harmless period.” CMS said states using the option will also be expected to work toward full compliance with the statute and regulations.
If a state chooses the option, CMS said it will not take enforcement action against the state for failing to condition eligibility on community engagement during the period. The protection applies to applications received and renewals initiated through and including June 30, 2027. The option is voluntary, and CMS said states are not required to use it for the entire period — a state may implement it for a shorter duration.
The flexibility is narrow. CMS said the hold harmless period applies only to the requirement to condition initial or continued eligibility on demonstrating community engagement, and “does not apply to denials and disenrollments based on eligibility criteria other than community engagement.” States may not suspend denials or disenrollments when a person is ineligible on other grounds, such as age or household income, the letter said.
For applications submitted and renewals initiated after a state’s hold harmless period ends, CMS said the state must deny or terminate eligibility when a person is determined ineligible for not meeting the work requirement, after complying with applicable regulatory requirements, including the noncompliance procedures at 42 C.F.R. § 435.558.
To use the option, a state must request it as an optional strategy in its mitigation plan, submitted to CMS, and CMS will approve use of the period as part of that plan, according to the letter. States that have already submitted a mitigation plan or requested a good faith effort exemption may update their requests. CMS asked states that intend to use the hold harmless period beginning Jan. 1, 2027, to notify the agency by December 11, 2026. CMS also said eligibility determinations made during a hold harmless period documented in an approved mitigation plan will not be considered errors for purposes of federal Payment Error Rate Measurement (PERM) reviews, Medicaid Eligibility Quality Control (MEQC) reviews, or other CMS eligibility audits.
“States have made real progress, and they’ve been clear with us about what it takes to get this right for beneficiaries—at scale and for the long term,” said Dan Brillman, CMS deputy administrator and director of the Center for Medicaid and CHIP Services. “If the state can use data to show that someone is working or qualifies for an exclusion, that person should not have to track down paperwork to prove it.”
CMS said the transition period is intended to let states further modernize their systems, improve their processes and streamline the applicant and beneficiary experience before enforcement begins.
This story is based on the Centers for Medicare & Medicaid Services’ November 13, 2026 announcement and its letter to state Medicaid directors (SMD# 26-006).
