H.R. 1, the tax and spending law passed in 2025, requires states to implement work requirements for expanded Medicaid populations. The law includes some exemptions, including for people with a substance use or disabling mental disorder. Starting in 2027, the work requirements will impact more than 20 million adults across 40 states and D.C., and in Georgia and Wisconsin through their waiver demonstrations. Effectively implementing the behavioral health exemption will be critical for states.
The Centers for Medicare and Medicaid Services (CMS) must release implementation guidance by June 2026 with federal requirements for implementation. The Congressional Budget Office estimated that approximately 5 million people might lose coverage over the next 10 years, many of whom will remain eligible for Medicaid but who did not successfully complete the paperwork. Previous state Medicaid work requirement experiments cost tens of millions of dollars to implement.
Work Requirements and Behavioral Health
During a time of national mental health and substance use crises, states must ensure consistent coverage for people with behavioral health conditions. Today, approximately half of Medicaid enrollees who need behavioral health care are able to get it. Gaps in coverage and access can lead to suicide, overdose, and persistent disability. They also may increase costs in the long term as people require even more intensive services and become less able to work. Effective early care leads to better outcomes and lower costs; state approaches to implementing the new requirements should take this into consideration.
To implement the H.R. 1 exemptions for people with a substance use disorder or a disabling mental disorder, states are required to use available data to verify exemptions, without making individuals provide additional information. Currently, states vary in their ability to automatically verify Medicaid eligibility and process applications in a timely manner, suggesting that there will also be variation in their ability to verify exemptions. States can avoid more disruptions in care if they can effectively verify exemptions using data.
Implementing the Behavioral Health Exemptions
CMS guidance will give federal requirements, but states could potentially identify people who should be exempt from the work requirements based on claims, administrative, and clinical data. Diagnostic codes associated with different services and electronic health record information can indicate whether a beneficiary previously received treatment for behavioral health conditions. Collaborations with different health insurers, providers, and information exchanges can also help streamline verification for people who previously received care outside Medicaid.
In administering the exemptions, states can exempt anyone with a diagnosed substance use disorder but can only exempt people with “disabling” mental disorders. The design of the law indicates that this is meant to be a lower threshold than the level of disability needed to qualify for other public benefits. While following CMS guidance, states will use their unique assets, experiences, and other tools to put the disabling mental disorders exemption into practice.
Mental health conditions cannot be determined to be disabling solely based on diagnosis. Almost all diagnoses can be disabling if untreated. For example, major depressive disorder is a common mental disorder but instances can range from mild to deadly. The same is true for service intensity. If a person uses only a modest amount of treatment or services, it could reflect low need, or it could indicate intense need and an inability to access care. The decision should also not be based solely on eligibility for special programs for serious mental illnesses. These specialized programs often enroll only a small proportion of people eligible due to complex requirements, so this would not identify everyone who would qualify for the exemption.
Instead, effective implementation would use a mix of claims and other administrative data to identify people who have mental health conditions and are not otherwise meeting their work requirements. This may indicate that their mental health condition is disabling. This strategy is imperfect, as it may include some people with moderate diagnoses, but ensures that people who most need care are able to get it and it takes a preventive lens to avoid conditions exacerbating.
Many people with disabling behavioral health conditions are not screened or in treatment, making them invisible in the data. For example, an individual may not know that a mental health condition is the cause of their decline in functioning and may not seek care. States can create screening programs for behavioral health conditions in community spaces, such as recreation centers, or try to identify people through mobile apps. Another strategy is attestation, empowering individuals to self-identify when they enroll in Medicaid. This can make sure that the state identifies everyone who falls within this exemption, while also helping people get the care they need.
Conclusion
CMS and states will need to consider how different approaches to implementing the Medicaid work requirements impact the behavioral health crisis and related long-term costs. States can begin to communicate their challenges and opportunities to CMS, which will promulgate federal guidance and work with states on waivers. A proactive approach can minimize the impacts for people with behavioral health conditions.
