Medicaid Under Fire: A Flood of Federal Policy Changes - and What States Must Do to Comply with the New Rules

June 23, 2026  |  Medicaid, CMS, State-Directed Payments (SDP)

Mike Rawaan, Founder and Managing Director

CMS has announced or deployed an overwhelming volume of policy changes affecting Medicaid since June 1, 2026. Work requirements. State-directed payment caps. Section 1115 budget neutrality overhaul. Alien eligibility restrictions. All of it landing within weeks of each other, with implementation clocks already running.

Don't worry - Covalence Health has you covered. We've tracked every major federal action and the state-level ripple effects to help healthcare executives make sense of and implement new changes. Below is a complete picture of what changed, what it means, and exactly what your team needs to do about it.

1. Medicaid Work Requirements IFC (June 1)

On June 1, CMS released an Interim Final Rule (CMS-2454-IFC) requiring that certain adult Medicaid applicants and enrollees meet an 80-hour-per-month community engagement requirement as a condition of eligibility. [1]

The rule implements Section 71109 of the One Big Beautiful Bill Act (OBBBA/HR-1, signed July 2025), which mandates work and community engagement requirements for able-bodied adults ages 19–64 in Medicaid expansion populations. States must implement by January 1, 2027, though several states are already ahead of schedule.

Key provisions include:

• 80 hours per month of qualifying activities: employment, education, job training, volunteering, or approved work programs [1]

• Exemptions for medically frail individuals, pregnant women, caregivers of children under 14, and others

• Semi-annual eligibility redetermination for covered populations

• CMS must release a final rule on work requirements - a hard deadline that has driven state implementation decisions across the country [2]

  
  

Nebraska (Live as of May 1, 2026) - The Nation's Test Case

The Cornhusker State appears to be ahead of the curve on operationalizing controls and processes to enforce this mandate, and we can only assume most states will follow this blueprint. Here are a few highlights:

• Data-first verification: Nebraska Department of Health and Human Services (DHHS) attempts to verify compliance using data it already holds before placing any burden on the member. Only when the state cannot auto-verify does it send a notice requesting documentation from the enrollee. Department of Health and Human Services

• 30-day cure window: Individuals found non-compliant receive notice and have 30 days to meet the requirement or claim an exemption before denial or disenrollment. Office of Governor Jim Pillen

• Phased renewal enforcement: DHHS is not applying requirements to all members simultaneously. Enforcement begins with members whose coverage periods end July 31, 2026, with phased rollout continuing through June 2027. Department of Health and Human Services

• NEworks integration: Members seeking employment support are directed to Nebraska's Department of Labor job service platform (NEworks), available online and via mobile app - connecting compliance with active job placement infrastructure. Office of Governor Jim Pillen

• Self-attestation as a bridge: Nebraska is currently allowing full self-declaration of compliance in year one, with the state signaling it will transition to external data verification over time. Critics note this makes Nebraska's early experience an unreliable preview of the national rollout - termination rates will likely rise as verification tightens. Georgetown University

• No new staffing or funding: Nebraska is absorbing implementation within its existing workforce, relying on federal H.R. 1 grants to cover administrative costs. Its DHHS budget was simultaneously cut by ~$19M for FY2026. Nebraska Public Media

Nebraska's approach isn't perfect - but it gave the country a baseline, and establishing a baseline is often the hardest part. States still in the planning phase now have a real-world reference point. That said, a copy-and-paste approach is the wrong move. Every state runs on different eligibility systems, different policy architectures, and different population dynamics. Nebraska's early implementation accelerates the learning curve for everyone, but it should not be treated as a blueprint.

References:

[1] CMS. "Medicaid Community Engagement Requirement for Certain Individuals Interim Final Rule with Comment Period (CMS-2454-IFC)." June 1, 2026. https://www.medicaid.gov/

[2] Center on Budget and Policy Priorities. "Nebraska Launching Punitive Medicaid Work Requirements Early." April 29, 2026. https://www.cbpp.org/blog/nebraska-launching-punitive-medicaid-work-requirements-early-even-as-states-lack-information