Medicaid Program; Community Engagement Requirement for Certain Individuals

Section 1902(xx)(6) of the Act, which we implement at Sec. 435.558, specifies the requirements for States when they are unable to verify that an applicable individual has demonstrated community engagement or is deemed to have demonstrated community engagement under Sec. 435.553, or if applicable, Sec. 435.555, during the review period specified at Sec. 435.556(a). When a State is unable to verify compliance, section 1902(xx)(6)(A)(i) and (ii) of the Act requires the State to provide the applicant or beneficiary with a notice of noncompliance and 30 calendar days from the date the notice is received for the individual to make a satisfactory showing that they met the community engagement requirement or that such requirement does not apply. Section 1902(xx)(6)(A)(ii)(II) of the Act requires the State to continue to provide coverage to beneficiaries during the 30-calendar day period, and the regulations at Sec. 435.930(b) require that a State maintain coverage for beneficiaries unless and until they are determined ineligible for medical assistance. If the individual fails to make a satisfactory showing during the 30-calendar day period, section 1902(xx)(6)(A)(iii) requires the State to deny the application, or if applicable, disenroll the beneficiary from coverage no later than the end of the month following the month in which the 30-calendar day period ends. Section 1902(xx)(6)(A)(iii)(I) of the Act and regulations in Sec. Sec. 435.911(c)(2) and 435.916(f) require the State to first consider if there is another basis of eligibility for which the individual qualifies before denying the application for coverage or disenrolling the beneficiary from coverage.

Sections 1902(a)(3) and 1902(xx)(6)(A)(iii)(II) of the Act and Sec. Sec. 435.917 through 435.918 and 42 CFR part 431, subpart E require States to provide written notice of an eligibility determination (including at least 10 days advance notice in the case of an eligibility termination or reduction) and the opportunity for a fair hearing to applicants and beneficiaries.

Section 1902(xx)(6)(B) of the Act requires the notice of noncompliance to include information on how the individual may make a satisfactory showing and how the individual may reapply for coverage.

While the statute uses the word “noncompliance” to describe the procedures that States must follow when they are unable to verify an individual's compliance with the community engagement requirement, the notice of noncompliance serves a similar purpose to that of a request for information in States' existing eligibility verification processes. The initiation of the noncompliance procedures described in section 1902(xx)(6) of the Act does not mean the State has made a final determination of noncompliance with the community engagement requirement or a determination of ineligibility for Medicaid. Rather, these procedures must be initiated when the State is unable to confirm, based on available information, that the individual has demonstrated community engagement, is deemed to have demonstrated community engagement, or is not an applicable individual (including those who meet the criteria for a specified excluded individual). Only after the individual receives the 30-calendar day opportunity to make a satisfactory showing can the State determine if the individual demonstrated or is deemed to have demonstrated community engagement or is excluded from the requirement and make a final determination of Medicaid eligibility. 1. Providing a Notice of Noncompliance

At Sec. 435.558(a)(1), we implement the requirement in section 1902(xx)(6)(A)(i) of the Act that a State must provide applicable individuals with a notice of noncompliance when it is unable to verify that an individual has met the requirement to demonstrate community engagement prior to determining the individual is ineligible. At Sec. 435.558(a)(2), we implement the requirement that the State provide such individuals with 30 calendar days

beginning on the date such notice is received to make a satisfactory showing of their compliance with the community engagement requirement or that such requirement does not apply. Because individuals are provided a notice of noncompliance when the State is unable to verify their compliance with community engagement, we interpret the phrase “satisfactory showing” of compliance to mean the individual provides sufficient information or documentation to allow the State to verify compliance with the community engagement requirement for the review period in accordance with the verification procedures discussed in section II.I. of this IFC.

At Sec. 435.558(a)(3), we specify that States must continue to furnish Medicaid to enrolled beneficiaries until an individual is determined ineligible consistent with long-standing regulations at Sec. 435.930(b). As such, States are not permitted to terminate coverage for an individual who is sent a notice of noncompliance during the 30-calendar day response period as required under section 1902(xx)(6)(A)(ii)(II) of the Act or until the State determines the individual is ineligible (including because the individual has failed to provide information or documentation necessary to verify compliance with the community engagement requirement), whichever is later. 2. Defining “Unable To Verify” Compliance With the Community Engagement Requirement

We specify in Sec. 435.558(b) when a State is considered to be unable to verify that an applicable individual has met the requirement to demonstrate community engagement at application and renewal. a. Defining “Unable To Verify” at Application

At Sec. 435.558(b)(1), we specify when a State is considered to be unable to verify that an applicant has met the requirement to demonstrate community engagement at application. Specifically, a State is considered unable to verify compliance when after reviewing the information provided on the application and any reliable information available to the State as defined at Sec. 435.557(a), the State still lacks sufficient information to determine whether the individual has demonstrated or is deemed to have demonstrated community engagement for the number of months required under the State plan. A State is considered to have insufficient information at application if: (1) the information provided by the applicant is not reasonably compatible with the reliable information available to the State, or (2) the individual did not provide the additional information or documentation requested by the State to verify that they met or are deemed to have met the community engagement requirement in accordance with the processes described in section II.I. of this IFC. States may follow long-standing policy to accept an applicant's declaration under penalty of perjury on the application that demonstrates they do not meet eligibility criteria without conducting additional verification to refute the information provided by the applicant. As such, a State may accept the declaration on the application without further verification and be considered to have verified the applicant's noncompliance with the community engagement requirement when an applicable individual provides information on the application that they do not meet the requirement during the review period under Sec. 435.556(a)(1). b. Defining “Unable To Verify” at Renewal

In Sec. 435.558(b)(2), we provide States with two options to determine when they are unable to verify that a beneficiary has met the requirement to demonstrate community engagement during a renewal of eligibility. The State must document its selected option in the State plan. Option 1

Under the option defined at Sec. 435.558(b)(2)(i), a State must consider that it is unable to verify an applicable individual's compliance with the community engagement requirement when the reliable information available to the State accessed at renewal, consistent with Sec. 435.916(a)(2), is not sufficient to verify compliance with the community engagement requirement. This situation could arise when sources of reliable information available to the State either: (1) do not return information to indicate the individual demonstrated community engagement or qualified for an exception to the community engagement requirement, or that the individual is a specified excluded individual; or (2) return information that suggests that the individual did not demonstrate compliance with or an exception to the community engagement requirement for the number of months considered under the review period defined under Sec. 435.556(a)(2) (for example, the reliable information indicates the individual worked less than 80 hours and no other information is identified about other qualifying activities for a required month). When this occurs, the State is considered unable to verify compliance with the community engagement requirement and must provide the beneficiary the notice of noncompliance under Sec. 435.558(c) concurrently with the pre- populated renewal form provided under Sec. 435.916(a)(3).

We note that the regulations at Sec. 435.916(a)(3)(B) require the State to provide MAGI beneficiaries with a minimum of 30 days to respond to a renewal form, but States are permitted to provide more time. Under this option, States that provide beneficiaries more than 30 days to return their renewal form may want to consider adjusting their response timeframe so it aligns with the 30-calendar day period to respond to a notice of noncompliance under section 1902(xx)(6)(A) of the Act. The 30-calendar day timeframe for the notice of noncompliance cannot be extended to align with a longer period for beneficiaries to return their renewal form. Aligning the response timeframe for the renewal form and notice of noncompliance can help a State gather as much information as possible if it needs to consider eligibility on other bases or for other insurance affordability programs timely. A State may also avoid sending beneficiaries multiple requests for information with different deadlines, which could be potentially confusing to beneficiaries. Option 2

Under the second option we define at Sec. 435.558(b)(2)(ii), a State is unable to verify an applicable individual's compliance with the community engagement requirement only after providing the pre- populated renewal form in accordance with Sec. 435.916(a)(3) to a beneficiary whose eligibility cannot be renewed based on reliable information in accordance with Sec. 435.916(a)(2). Specifically, a State would consider that it is “unable to verify” an individual's compliance if either: (1) the returned renewal form does not provide sufficient information to demonstrate the beneficiary's compliance with or exception from the community engagement requirement, or to demonstrate that the requirement does not apply; or (2) the beneficiary does not return their renewal form when the only information needed to redetermine eligibility is related to demonstrating compliance with the community engagement requirement. The State is then considered unable to verify compliance with the community engagement requirement and must provide the beneficiary the notice of noncompliance under Sec. 435.558(c).

This option differs from option 1 because the State would send the notice of noncompliance to the beneficiary after the time allotted by the State under Sec. 435.916(a)(3) to return the renewal form or, if earlier, after the individual has returned their renewal form without sufficient information to verify that the individual demonstrated community engagement, met an exception, or is excluded from the requirement.

We note that under this second option, the State is only required to send the notice of noncompliance if compliance with the community engagement requirement is the only factor of eligibility that remains to be verified after the time allotted for the beneficiary to return the renewal form has elapsed. A State does not need to send the noncompliance notice in instances where the State must request information on the pre-populated renewal form related to multiple factors of eligibility, and the individual does not return their form or returns their form without all the necessary information for eligibility criteria other than community engagement. In this case, the State must provide notice and fair hearing rights consistent with Sec. 435.917(b) and part 431 Subpart E before disenrolling the individual for procedural reasons. States should also inform such individuals that, if they later return their renewal form, during the reconsideration period under Sec. 435.916(a)(3)(iii), their eligibility may be reconsidered and how the individual may demonstrate community engagement during the reconsideration period.

We outline two scenarios under Option 2 when an individual does not return the renewal form to illustrate when the State needs to send the notice of noncompliance.

Option 2--Scenario 1: After checking reliable information available to the State during the ex parte process, the State has reliable information available to verify continued eligibility for all factors of eligibility for an applicable individual except community engagement. The State sends the applicable individual a pre-populated renewal form that requests information related to community engagement. If the applicable individual does not return their renewal form requesting information related to community engagement, the State must follow the community engagement noncompliance procedures at Sec. 435.558(a), beginning with sending the noncompliance notice.

Option 2--Scenario 2: After checking reliable information available to the State during the ex parte process, the State does not have sufficient reliable information to complete the renewal for State residency or community engagement and sends the applicable individual a pre-populated renewal form that requests information needed to complete the renewal. If the applicable individual does not return the renewal form with requested information on residency, the community engagement noncompliance procedures at Sec. 435.558(a) do not apply in this scenario because the State does not have sufficient information to determine the individual's continued eligibility for Medicaid. The State must provide notice and fair hearing rights consistent with Sec. 435.917(b) and Part 431 Subpart E and disenroll the individual from coverage for procedural reasons at the end of the individual's eligibility period.

The second option could result in the State needing to send the notice of noncompliance to fewer individuals, as States are expected to collect the information needed to renew eligibility on the renewal form, including information related to community engagement. However, a State selecting this option would need to account for the additional time it would take to complete renewals, because the State is providing two separate periods of at least 30-calendar days for the individual to provide information with the pre-populated renewal form and the noncompliance notice. States must complete the entire renewal process, including the noncompliance procedures, by the end of the beneficiary's eligibility period.

We believe that providing States with these two options allows them the ability to operationalize the noncompliance procedures within the context of the existing renewal process, without creating unnecessary confusion for the beneficiary or disruptions to State operations, in the manner the State determines most appropriate for its circumstances.

If a State receives a completed renewal form and any requested information or documentation after the timeframe provided by the State, but prior to the end of an individual's eligibility period, the State must act on this information by promptly redetermining eligibility and must have a mechanism in place to ensure that eligibility and coverage continue, consistent with Sec. 435.930(b), until the information received is evaluated and a final redetermination is made.\105\

\105\ CMCS Informational Bulletin, “Medicaid and Children's Health Insurance Program (CHIP) Renewal Requirements,” (December 4, 2020), pg. 5, available at https://www.medicaid.gov/federal-policy-guidance/downloads/cib120420.pdf.

At Sec. 435.558(b)(3), we specify that, for States electing to conduct more frequent verifications of community engagement for applicable individuals under Sec. 435.557(d), the State may select one of two options, similar to those provided at renewal, to determine when it is considered unable to verify that an applicable individual has satisfied the requirement to demonstrate community engagement during a renewal of eligibility. Option 1

Under the option we define at Sec. 435.558(b)(3)(i), a State is considered unable to verify compliance with the community engagement requirement when, at the time of the more frequent verification, the reliable information available to the State is insufficient to determine that the individual is a specified excluded individual or that the individual has demonstrated or is deemed to have demonstrated community engagement for the number of months required under the State plan. When this occurs, the State is considered unable to verify compliance with the community engagement requirement and must provide the beneficiary the notice of noncompliance under Sec. 435.558(c). The associated 30-calendar day period for the beneficiary to make a satisfactory showing of compliance with the community engagement requirement fulfills the requirement in Sec. 435.952(d) to seek additional information from an individual before terminating eligibility on the basis of reliable information received by the State. The State does not need to send a separate request for information prior to sending the notice of noncompliance under this option. Option 2

Under the second option we define at Sec. 435.558(b)(3)(ii), a State may only be considered unable to verify an applicable individual's compliance with the community engagement requirement after determining that reliable information available to the State is insufficient to verify compliance and following the State's existing procedures under Sec. 435.952(d) to request information from the individual. If the beneficiary does not respond to this request for information or does not provide sufficient information to demonstrate compliance with community engagement, the State must send the notice of noncompliance to the

beneficiary and provide the associated 30-calendar period for the beneficiary to make a satisfactory showing.

At application, renewal, or, if applicable, during a more frequent verification of compliance, verifying compliance with the community engagement requirement and the associated noncompliance procedures represent significant changes to existing eligibility and enrollment processes. States may wish to consider how these changes affect overall timelines and associated workflows at application and at renewal for all beneficiaries and make the necessary adjustments to ensure efficient eligibility and enrollment operations. 3. Content and Timing of the Noncompliance Notice

In Sec. 435.558(c), we specify the content States must include in the notice of noncompliance. Section 1902(xx)(6)(B) of the Act specifies that the notice of noncompliance must include information on how an applicable individual may make a satisfactory showing of compliance with the community engagement requirement or that such requirement does not apply and how the individual may reapply for Medicaid if eligibility is denied or the individual is disenrolled from coverage. In implementing these notice requirements, we are also specifying additional content that must be included in the noncompliance notice to ensure that the individual fully understands the noncompliance process and the consequences of failure to respond. We specify in Sec. 435.558(c)(1)(i) through (vii) that the notice of noncompliance must include clear statements containing the following information:

How to make a satisfactory showing of compliance with the community engagement requirement, including:

Which month(s) will be assessed by the State in accordance with Sec. 435.556(a);

How to show the individual demonstrated community engagement under Sec. 435.552; and

How to show the individual should be deemed to have demonstrated community engagement as specified in Sec. 435.553 or, if applicable, Sec. 435.555;

How to make a satisfactory showing that the community engagement requirement does not apply to the individual on the basis that the individual does not meet the definition of an applicable individual in Sec. 435.551, including because the individual meets the criteria for one or more of the categories of a specified excluded individual under Sec. 435.554;

The deadline for providing the information under Sec. Sec. 435.558(c)(1)(i) or (c)(1)(ii) to the State;

A description of how the information under Sec. Sec. 435.558(c)(1)(i) or (c)(1)(ii) may be submitted to the State through any of the modalities described in Sec. 435.907(a);

A description of the consequences of noncompliance with the community engagement requirement and failure to respond to the notice of noncompliance for Medicaid eligibility and eligibility for advance payments of the premium tax credit (APTC) and the premium tax credit (PTC) used to pay for coverage through a Health Insurance Exchange, as provided in section 1903(xx)(7)(B) of the Act;

How such individual may reapply for medical assistance under the State plan (or a waiver of such plan) if the individual's application is denied or the individual is disenrolled from coverage under the State plan or waiver, as applicable; and

For States that have elected to provide the short-term hardship exception under Sec. 435.555, the information about short- term hardships described in Sec. 435.555(c).

For consistency with other eligibility-related notices and forms, we specify that the notice of noncompliance must be provided consistent with Sec. 435.905(b) in Sec. 435.558(c)(2), and we further specify that, if provided in electronic format, the notice must comply with Sec. 435.918(b) in Sec. 435.558(c)(3).

In Sec. 435.558(c)(4), we specify when an individual is considered to have received notice of noncompliance for the purpose of determining when the 30-calendar day period begins. We recognize that many individuals receive notices from the Medicaid agency via mail through the U.S. Postal Service, and States may not know when an individual receives a notice as mail delivery times vary or circumstances may prevent an individual from receiving their delivered mail. We consider the notice of noncompliance to be received 5 days after the date on the notice, unless the applicant or beneficiary shows that he or she did not receive the notice within the 5-day period. For example, an individual might not receive the notice in this timeframe if the individual is hospitalized, the individual's mail is on hold, or the individual was away from home. This is consistent with established timelines for receipt of a notice of action (in Sec. 431.231(c)(2)) and of an adverse local evidentiary hearing decision (in Sec. 431.232(b)). 4. State Responsibilities When There Is No Satisfactory Showing of Compliance

In Sec. 435.558(d), we describe States' responsibilities when an applicable individual does not make a satisfactory showing of compliance with the community engagement requirement after receiving the notice of noncompliance, consistent with section 1902(xx)(6)(A)(iii)(I) of the Act. We specify at Sec. 435.558(d)(1) that the State must consider all bases of eligibility prior to determining an applicable individual is ineligible consistent with Sec. Sec. 435.911 and 435.916(f). Federal regulations in Sec. 435.911(c)(2) and (d)(1), in turn, require that if a State has any information that indicates the individual is potentially eligible for a non-MAGI eligibility group, the State must collect the needed additional information to determine eligibility for Medicaid on any non-MAGI basis. If the State determines the individual is eligible on another basis, the State must enroll the individual in such group. Thus, consistent with these existing requirements, as part of the community engagement noncompliance procedures, States must evaluate an individual's eligibility for Medicaid on all bases before making a determination that an individual is ineligible for Medicaid.

At Sec. 435.558(d)(2), we specify that States must deny eligibility or disenroll an applicable individual from coverage when the individual does not make a satisfactory showing to demonstrate compliance with the community engagement requirement. As with other decisions affecting an individual's eligibility, the State must provide written notice (including at least 10 days advance notice in the case of an eligibility termination or reduction) and grant the individual an opportunity for a fair hearing in accordance with Sec. Sec. 435.917 through 435.918 and 42 CFR part 431, subpart E. For applicants, we specify at Sec. 435.558(d)(2)(i) that States must deny the individual's application and provide written notice and fair hearing rights consistent with Sec. Sec. 435.917 through 435.918 and 42 CFR part 431, subpart E. For beneficiaries, at Sec. 435.558(d)(2)(ii), we implement the requirement in section 1902(xx)(6)(A) of the Act to disenroll individuals from coverage who are determined ineligible under the State plan (or waiver of such plan) on all bases not later than the end of the month following the month in which the 30-calendar day period ends and after the provision of advance notice and fair hearing rights consistent with Sec. Sec. 435.917 through 435.918 and 42 CFR part 431, subpart E. While Sec. 435.558(d)(2)(ii) sets an outer bound

for when an individual who does not make a satisfactory showing must be disenrolled, it does not change the requirement for States to conduct periodic renewals of eligibility consistent with section 1902(e)(14)(L) of the Act and Sec. 435.916, and therefore, the time frame to complete the disenrollment should not be used as a waiting period to provide coverage beyond the end of an individual's eligibility period.

In Sec. 435.558(d)(2)(iii), we require that the notice under Sec. 435.558(d)(2)(i) and (ii) must include a clear statement of the specific reasons supporting the denial or disenrollment, as appropriate, which explains that the applicant or beneficiary failed to:

Make a satisfactory showing of compliance with the community engagement requirement under Sec. 435.552, including by meeting the criteria for an exception to be deemed as demonstrating community engagement under Sec. 435.553 or, if applicable, Sec. 435.555, for the month(s) specified in accordance with Sec. 435.556(a); and

Make a satisfactory showing that the community engagement requirement does not apply to the individual on the basis that the individual does not meet the definition of applicable individual in Sec. 435.551, including failure to demonstrate the individual meets the criteria for one or more of the categories of a specified excluded individual under Sec. 435.554.

For both applicants whose application is denied and beneficiaries who are disenrolled from coverage, we specify in Sec. 435.558(d)(2)(iv) that the State must determine the individual's potential eligibility for other insurance affordability programs in accordance with Sec. 435.1200(e). 5. Reenrollment and Reconsideration Periods

Section 1902(xx)(6) of the Act does not change the requirements related to an individual's ability to reapply for coverage or the steps States must take when processing applications under Sec. 435.907 and renewals under Sec. 435.916. As such, in Sec. 435.558(e), we provide that States must not impose any restriction on an applicable individual's ability to re-apply for coverage or their ability to receive coverage if determined eligible upon reapplication based on the applicable individual's prior denial of eligibility or disenrollment for noncompliance under Sec. 435.558. Consistent with sections 1902(a)(8) and (a)(10) of the Act, States must also furnish benefits to eligible applicable individuals with reasonable promptness and in accordance with the State plan (or waiver of such plan), regardless of a prior denial of eligibility or disenrollment for noncompliance under Sec. 435.558. States must not impose a “waiting period” or “lock- out period” following the denial or disenrollment for noncompliance with the community engagement requirement, as such practices would impermissibly prevent applicable individuals from applying for coverage or from receiving coverage for which they are eligible, and therefore violate these statutory requirements.

We also recognize that, as with the renewal form, some beneficiaries may not return information requested in the notice of noncompliance. We specify in Sec. 435.558(f) that States must provide a reconsideration period consistent with Sec. 435.916(a)(3)(iii) for individuals enrolled on a MAGI basis who were disenrolled for failure to submit information requested in the notice of noncompliance and subsequently submit the requested information during the reconsideration period. States have the option to provide a reconsideration period to individuals enrolled on a basis other than MAGI. During the reconsideration period, the information or documentation requested in the notice of noncompliance is treated as an application, and the date on which the individual returns the requested information or documentation is considered the date of application.\106\ For individuals subject to community engagement who return their renewal form or information requested in the notice of noncompliance during the reconsideration period, States must follow procedures for assessing compliance with community engagement at application, as provided in Sec. 435.556(a)(1). Such applicable individuals are required to have demonstrated or be deemed to have demonstrated community engagement in the month prior to the date of the application, or additional consecutive months, as elected by the State under Sec. 435.556(a)(1).

\106\ CMCS Informational Bulletin, “Medicaid and Children's Health Insurance Program (CHIP) Renewal Requirements,” (December 4, 2020), pg. 7, available at https://www.medicaid.gov/federal-policy-guidance/downloads/cib120420.pdf.

Federal regulations in Sec. 435.912 require States to complete eligibility determinations for Medicaid promptly and without undue delay. In general, the determination of eligibility for any individual may not exceed 90 days for applicants who apply on the basis of disability and 45 days for all other applicants, which includes individuals whose eligibility is being determined based on MAGI. The regulations specify that the timeliness standards cover the period from the date of application or transfer from another insurance affordability program to the date the State notifies the applicant of its decision.

New Sec. 435.558(a) imposes an additional requirement on States to provide notice of noncompliance to an applicable individual who the State is unable to verify as being compliant with the community engagement requirement and to afford such individual 30 calendar days from the date they receive the notice to demonstrate community engagement or that they should be deemed to demonstrate community engagement, or establish that they do not meet the definition of an applicable individual, which States must account for when making determinations of eligibility.

We believe the 45-day timeliness standard under Sec. 435.912 for MAGI beneficiaries is necessary to prevent delays in applicants' eligibility determinations. We also recognize that the 30-calendar day period that must be provided to individuals who receive a notice of noncompliance may make it difficult for States to comply with such timeliness standard requirements. For example, instances may arise where the 30-calendar day period that must be provided to applicable individuals following the receipt of a notice of noncompliance at application extends beyond the 45-day timeframe even if the State acts promptly to process the application. Based on anecdotal information through our work with States, we believe States ordinarily provide less than 30 days for the applicant to respond to any requests for information in order to meet the 45-day timeliness standard to make determinations of eligibility for applicants. Therefore, we are adding Sec. 435.912(e)(3) to provide a new exception to the timeliness standard at Sec. 435.912(c)(3)(ii) for applicants who receive the notice of noncompliance under Sec. 435.558(a) and when the State is unable to meet the 45-day timeliness standard due to the required 30- calendar day period discussed in this section of this IFC. When a State uses this exception, it must do so on a case-by-case basis and document the reason for the delay in the applicant's case record as required by Sec. 435.912(f).

We acknowledge that depending on States' systems and operational capacities, as well as the timing of an individual's response, the required 30-

calendar day period for applicants to return information related to community engagement will not always result in a delay in completing a determination of eligibility for an applicable individual who is sent a notice of noncompliance at application. States that can make a timely determination of eligibility for applicants who are sent a notice of noncompliance must do so within the timeliness standards. However, we understand that not all applicants will respond to the notice early in the 30-calendar day period, and that when the applicant has not responded to verify compliance with the community engagement requirement until the end of the 30-calendar day period, States may be unable to notify the applicant of an eligibility decision within the 45-day timeliness standard. We believe the exception at Sec. 435.912(e)(3) is necessary to prevent States from being subject to compliance action for failure to meet the regulatory timeliness standard as a result of complying with section 1902(xx) of the Act. We also seek to ensure that States take necessary steps to continue to make timely and accurate determinations of eligibility to the greatest extent possible.

Consistent with existing requirements in Sec. 435.912(g)(1), we expect States to complete their initial eligibility determinations as quickly as possible and not use the maximum period available under the timeliness standard to delay the initiation of coverage for individuals who would otherwise be determined eligible and enrolled more quickly. We expect States to use the new exception in those cases where the State would have made the determination within the timeliness standard at Sec. 435.912(c)(3)(ii) but was unable to do so because the State was required to give the individual the full 30-calendar day period at Sec. 435.558(a)(2), and the individual did not respond to the notice sufficiently early in this 30-calendar day period to enable the State to meet the timeliness standard.

The new exception is only available if a State is unable to process an application timely for applicants to whom the State is required to send the notice of noncompliance because the State is unable to verify whether such individual is a specified excluded individual or whether the individual demonstrated or should be deemed to demonstrate community engagement. The exception may not be used when a State sends a request for information that is not related to the notice of noncompliance, such as for Medicaid applications for applicants who are not applicable individuals or for CHIP or BHP applications. As such, we make corresponding revisions to Sec. Sec. 457.340(d)(1) and 600.320(b) to specify that the exception added by this IFC in Sec. 435.912(e)(3) does not apply to CHIP and BHP applications. 7. Impact of Noncompliance and Eligibility for Financial Assistance for Coverage on a Health Insurance Exchange

Section 1902(xx)(7)(B) of the Act specifies the effect of noncompliance with the community engagement requirement as it relates to eligibility for financial assistance for coverage on a Health Insurance Exchange. An individual who is eligible for Medicaid coverage that provides MEC is generally not eligible for advance payments of the premium tax credits (APTC) and the premium tax credit (PTC) used to pay for coverage through a Health Insurance Exchange. Under section 1902(xx)(7)(B) of the Act, for purposes of section 36B(c)(2)(B) of the Code, an individual is deemed to be eligible for MEC for a month if the individual would have been eligible for Medicaid but for their failure to meet the community engagement requirement. As such, an applicable individual who does not demonstrate community engagement or is not deemed to have done so, who would otherwise be eligible for Medicaid coverage under the State plan (or waiver), is precluded from eligibility for APTC and PTC. We expect to issue operational guidance regarding how States should coordinate with exchanges, to ensure proper implementation of this provision.

Section 1902(xx) of the Act requires States to establish a community engagement requirement for certain individuals enrolled in or applying for Medicaid. Section 1902(xx)(1) of the Act requires that beginning no later than January 1, 2027, unless granted a good faith effort exemption under section 1902(xx)(11) of the Act and Sec. 435.560, State Medicaid agencies must require “applicable individuals,” defined in detail in section II.B. of this IFC and Sec. 435.551, to demonstrate community engagement or be deemed to have demonstrated community engagement as a condition of eligibility. A State has the option to implement the community engagement requirement before January 1, 2027, either under the State plan or a section 1115 demonstration. These requirements apply to both individuals applying for Medicaid and individuals enrolled in Medicaid, as discussed in section II.H of this IFC. This section of the preamble discusses what is required for States to successfully implement the community engagement requirement in a timely manner, including the systems and capabilities needed to operationalize the community engagement requirement. New Sec. 435.559 implements and interprets the implementation timing of section 1902(xx)(1) of the Act. 1. Implementation Date

We consider a State's “implementation date” to be the date on which fulfilling the community engagement requirement becomes a condition of eligibility for applicable individuals. As such, applicable individuals who submit an application for medical assistance on or after the implementation date must be required to demonstrate or be deemed to demonstrate community engagement as a condition of eligibility. Beginning on the implementation date, enrolled beneficiaries must demonstrate or be deemed to have demonstrated community engagement as part of periodic renewals of eligibility, or more frequently, if elected by the State. As required at Sec. 435.561(b)(1), States must notify certain individuals of the requirement to demonstrate community engagement before the State's implementation date. See Table 2 in section II.L of this IFC for a visual representation of outreach timing relative to the implementation date and discussion of the requirement for States to provide certain individuals with notice of the community engagement requirement prior to requiring their compliance therewith. 2. Special Considerations at Implementation a. Pending Applications and Implementation of the Community Engagement Requirement

Upon implementation, a State will have applications that were submitted before implementation of the community engagement requirement and for which eligibility determinations have not yet been made. These pending applications must be adjudicated according to the policies in place on the date the application was submitted, consistent with Sec. 435.915, which provides that the effective date of Medicaid coverage is based on the date an application is submitted. If applicable individuals included on such an application are determined eligible and enrolled, the State must then apply the new community engagement requirement to these individuals in accordance with requirements for

enrolled beneficiaries discussed in the next section.

As an illustrative example, consider a State that has an implementation date of January 1, 2027. The State requires that an applicable individual demonstrate community engagement in the month before the month of application and does not elect to conduct more frequent verifications of community engagement. An application for medical assistance that is submitted on December 15, 2026, must be adjudicated based on the eligibility rules in place on December 15, 2026, even if an eligibility determination is not made until January 15, 2027 (after the implementation date). Since the community engagement requirement was not in place at the time of application, the State must not evaluate whether the individual is an applicable individual and whether the individual demonstrated community engagement in November 2026, the month before the month of application. If the person is determined eligible and enrolled in Medicaid, then the applicability of the community engagement requirement and the individual's compliance with the requirement will be evaluated as part of the person's next scheduled periodic renewal of eligibility. However, the individual must be notified of the community engagement requirement when they enroll in coverage, in accordance with the outreach requirements in section II.L. of this IFC and Sec. 435.561. b. Community Engagement Requirement for Enrolled Beneficiaries at Implementation

The requirement for States to consider community engagement compliance as a condition of eligibility no later than January 1, 2027, applies to applicable individuals already enrolled in the State's Medicaid program as of that date, as well as to those newly applying on or after that date who enroll. Further, section 1902(xx)(1)(B) of the Act provides that States must require applicable individuals enrolled in Medicaid to demonstrate community engagement for 1 or more months during the period between the individual's most recent determination of eligibility and their next regularly scheduled redetermination of eligibility. However, the statute does not explicitly state when States must first verify compliance with the community engagement requirement for individuals already enrolled in the State's Medicaid program as of January 1, 2027 (or the earlier implementation date selected by the State). On any given date, a portion of the State's Medicaid population will be in the process of having their eligibility redetermined as part of required periodic renewals of Medicaid eligibility. As such, all States will have some renewals in progress on the State's community engagement implementation date.

Section 1902(xx)(a)(1) of the Act requires that States “provide, as a condition of eligibility for medical assistance for an applicable individual, that such individual is required to demonstrate community engagement . . . as part of such regularly scheduled redetermination.” The language in the statute is ambiguous for eligibility periods that began prior to a State's implementation date and for which the renewal process is under way on the State's community engagement implementation date. Consistent with other guidance provided to States when applying a change in policy that affects renewals,\107\ we interpret section 1902(xx)(a)(1)(B) of the Act to allow States to begin verifying an applicable individual's compliance with community engagement at the first renewal initiated on or after the State's implementation date. A renewal is considered initiated when the State begins reviewing reliable information available to the State in an effort to complete a beneficiary's renewal without requiring a renewal form or other information from the beneficiary in accordance with Sec. 435.916(a)(2) (ex parte renewal). We considered whether States should be required to first assess compliance with the community engagement requirement based on the end date of the beneficiary's eligibility period, rather than when the renewal process is initiated; that is; first verifying compliance with community engagement if the end date of the eligibility period occurs on or after the State's implementation date. However, based on discussion with State systems and operational staff, many States have a renewal process that takes between 60 to 90 days. As such, if a State were required to begin verifying compliance for applicable individuals with a renewal due on January 31, 2027, many States would be required to apply the community engagement requirement at renewals initiated as early as November 2026. This would require States to request information about community engagement activity prior to the State's implementation date. We conclude it is a reasonable approach to base the first required verification of an enrolled beneficiary's compliance with the community engagement requirement on when a renewal is initiated in relation to the State's implementation date.

\107\ CMCS, State Medicaid Director Letter 26-001, Implementation of “Eligibility Redeterminations,” Section 71107 of the “Working Families Tax Cut” Legislation (Pub. L. 119-21), March 6, 2026, available at https://www.medicaid.gov/federal-policy-guidance/downloads/smd26001.pdf.

To successfully meet the community engagement requirement, States will need to implement multiple interrelated changes to their Medicaid Enterprise Systems (MES), including but not limited to the eligibility and enrollment (E&E) systems (as defined in Sec. 433.111(b)(2)). CMS expects States to continue to enhance their systems after the State's implementation date by expanding the use of electronic data sources to verify qualifying activities, exceptions, and exclusions, automating manual processes, and incorporating operational lessons learned from initial implementation. Additionally, we will engage with States through regular implementation oversight processes, which will include review of monthly project status reports, milestone tracking, technical assistance discussions, regular demonstrations of functionality, and other monitoring activities designed to assess progress toward timely implementation. In particular, we will focus on whether States are making meaningful progress towards systems readiness, identifying and escalating implementation risks in a timely manner, and seeking technical assistance to ensure operational readiness. We will use information obtained through these oversight activities to inform our understanding of State progress, implementation challenges, and whether a State is making continued good-faith efforts toward compliance. We intend to publish more detailed expectations for the features and functionalities, testing, systems demonstrations, and reporting of CMS- required outcomes and metrics in separate forthcoming guidance, as well as discuss monitoring of State progress in implementing the systems changes needed to operationalize the community engagement requirement.

Enhancements, as defined at 45 CFR 95.605,\108\ to existing E&E systems and the addition of new connections to electronic data sources to implement the community engagement requirement may trigger periodic review and systems approval or reapproval. In the May 24,

2023, CMCS Informational Bulletin,\109\ we explained that the streamlined modular certification framework for MES is structured around conditions for enhanced funding, outcomes, and metrics, and expressly described outcomes and metrics as applying to “a new module or enhancement to an existing module.” In the context of community engagement implementation, States will need to enhance existing eligibility and enrollment functionality, which may include the need to incorporate connections to additional electronic data sources into the existing system.

\108\ Under 45 CFR 95.605, enhancements are defined as “modifications which change the functions of software and hardware beyond their original purposes, not just to correct errors or deficiencies which may have been present in the software or hardware, or to improve the operational performance of the software or hardware.”

\109\ CMCS Informational Bulletin, “Medicaid Enterprise Systems Compliance and Reapproval Process for State Systems with Operational Costs Claimed at the 75 Percent Federal Match Rate,” (May 24, 2023), available at https://www.medicaid.gov/federal-policy-guidance/downloads/cib052423.pdf.

Under Sec. 433.119, we established a periodic review and reapproval framework focused on continued compliance of the operational system \110\ initially approved under Sec. Sec. 433.114 and 433.116 for 75 percent FFP for ongoing operations. Continued compliance refers to confirmation that the system in operation continues to meet applicable Federal requirements and the conditions for enhanced Federal matching rates, as evidenced through operational reports, metric data, and other supporting documentation. We use this framework to assess ongoing system performance and compliance, which does not necessitate a reapproval each time a State enhances an existing CMS-approved system, adds an interface, or incorporates a new data source.\111\ However, based on our assessment of ongoing system performance and compliance, we may determine a need to review and reapprove a State's entire MES, a particular module or solution, or discrete components of a system to validate whether the system is operating in alignment with applicable Federal requirements.\112\ As a result, CMS does not require systems to be reapproved because they were modified or enhanced unless indicated by declines in system performance.

\110\ Ibid.

\111\ Ibid.

Accordingly, where a State modifies an already approved operational system to implement the community engagement requirement, the relevant question for purposes of 75 percent FFP for operations is whether the system, as modified, continues to satisfy the applicable conditions for enhanced operational funding and remains compliant with Federal requirements. Such changes do not, by themselves, require a separate reapproval solely because existing approved functionality has been enhanced. At the same time, the system remains subject to CMS's periodic review and reapproval authority under Sec. 433.119, and we may review the system, module, or discrete components, as appropriate, to assess continued compliance. We interpret this framework to apply to enhancements like the incorporation of additional electronic data sources, interfaces, and exchanges that support implementation of the community engagement requirement within an already-approved MES.

Under Sec. 433.116, 75 percent FFP is available for operation of an approved MES module or component when the system meets the applicable operational conditions. Those conditions include, through Sec. 433.116(i), the reporting condition incorporated from Sec. 433.112(b)(15), which requires the production of transaction data, reports, and performance information that contribute to program evaluation, continuous improvement in business operations, and transparency and accountability. CMS explained in the 2023 CIB \113\ that States must submit operational reports containing metric data, verification of compliance with the conditions for enhanced Federal matching rates required under Sec. Sec. 433.112 and 433.116, and other evidence that MES modules meet all applicable requirements for the State's claimed Federal matching funds. CMS further explained that operational reporting enables monitoring of system performance and functionality and provides ongoing demonstration of continuous achievement of required outcomes.

\113\ Ibid.

CMS applies this same requirement to community engagement-related systems changes. In many cases, implementation of community engagement will require States to adjust existing system logic, add reporting and tracking functions, support new beneficiary-facing processes, and establish or refine data exchanges with other entities. Where those changes are made within an existing approved MES module or solution, we interpret the applicable regulations to require the State to continue its operational reporting and metrics in a manner that demonstrates that the system, as modified, remains compliant with the conditions for enhanced funding and continues to operate successfully. We remind States that FFP may be available for systems changes necessary to implement the community engagement requirement, in addition to the funding provided under the government efficiency grants authorized under WFTC legislation. Accordingly, to the extent a State must design, develop, or install new or enhanced E&E systems (as defined at Sec. 433.111(b)(2)) to implement the community engagement requirement, such activities may be eligible for 90 percent FFP, consistent with Sec. 433.112. To receive enhanced FFP, the State must obtain CMS approval of the applicable advance planning document (APD) prior to incurring expenditures, and the project must meet the conditions of 42 CFR part 433, subpart C and other applicable Federal requirements.

Lastly, we remind States and their vendors to pursue implementation of community engagement-related systems changes in a manner that is timely, operationally practical, and cost-effective in alignment with Sec. 433.112(b)(1). Vendors supporting these efforts should provide best possible pricing, facilitate robust coordination with States, support integration with existing Medicaid Enterprise Systems, and avoid unnecessary customization or other practices that could result in avoidable cost increases or implementation delays. We expect solutions to be scalable, transparent, and designed to promote efficient implementation. States remain responsible for ensuring that procured systems solutions are appropriately scoped, reasonably priced, and aligned with applicable Federal requirements. 4. Good Faith Effort Exemption

As described in section II.K.1. and 2. of this IFC and Sec. 435.559, States must implement the community engagement requirement beginning January 1, 2027, although States may elect an earlier implementation date via a section 1115 demonstration or through a State plan amendment. Section 1902(xx)(11)(A) of the Act provides the Secretary of HHS with the authority to grant States a temporary good faith effort exemption from compliance with timely implementation of the community engagement requirement. Section 1902(xx)(11)(B) of the Act outlines the process for determining whether a State has demonstrated a good faith effort towards compliance with timely implementation, including the criteria that must be considered in the evaluation. Section 1902(xx)(11)(C) of the Act describes the duration of the good faith effort exemption, if granted, along with conditions that may warrant early termination. Section 1902(xx)(11)(D) of the Act includes reporting requirements associated with

an approved good faith effort exemption.

This section of this IFC discusses how a State may request a good faith effort exemption, the criteria by which CMS will evaluate such requests, and the duration and reporting requirements of such exemptions, if granted. New Sec. 435.560 implements and interprets section 1902(xx)(11) of the Act. a. Process and Timing of Requests

Section 1902(xx)(11)(A)(i) of the Act provides CMS with the ability to specify the form and timing of States' requests for a good faith effort exemption. We expect to issue a template for States to use to submit such requests. b. Criteria for Good Faith Effort Determination

Section 1902(xx)(11)(B) of the Act outlines the criteria CMS will consider when determining whether a State has demonstrated a good faith effort towards implementing the community engagement requirement. These criteria, which must be addressed in the State's request, include:

1. Any actions taken by the State toward compliance with the requirements of implementing community engagement;

2. Any significant barriers to, or challenges in, meeting such requirements, including related to funding, design, development, procurement, or installation of necessary systems or resources;

3. The State's detailed plan and timeline for achieving full compliance with such requirements, including any milestones of such plan (as defined by the Secretary); and

4. Any other criteria determined appropriate by the Secretary.

Generally, when addressing these criteria, we encourage States to demonstrate the use of standardized and industry accepted project management principles and accountability.

At Sec. 435.560(b)(1), we implement the first criterion, which requires the State to provide any actions it has taken to date towards compliance with timely implementation of the community engagement requirement. We are primarily interested in actions that demonstrate consistent effort and progress towards implementation across multiple overarching domains, such as procurement, policy development, and operational preparations. Examples of actions that fall under these domains may include, but are not limited to, efforts towards: securing funding not already available to the State; passage of State legislation necessary to implement community engagement; developing necessary State-level guidance, regulations, policies, and procedures; procuring vendors for necessary system and operational changes, as described in section II.K.3 of this IFC (Systems Changes Needed to Implement Community Engagement); making preparations to ensure sufficient staffing and training for such staff; establishing a communication plan for beneficiaries and other external interested parties; and engaging in and making use of technical assistance opportunities and resources. We encourage States to provide data on or otherwise quantify the scope of their actions.

In addition to these aforementioned domains and examples, it is also important for a State to identify any actions it has already taken towards identifying risks, notifying CMS of such risks and seeking technical assistance from CMS, if needed, as soon as practicable, developing a risk mitigation plan, and implementing such mitigations.

At Sec. 435.560(b)(2), we implement the second criterion, which requires the State to identify significant barriers or challenges the State has faced towards implementing the community engagement requirement. We recognize the timeframe for implementing the community engagement requirement is limited. Section 1902(xx)(11)(B)(ii) of the Act specifically notes an interest in “significant barriers or challenges related to the funding, design, development, procurement, or installation of necessary systems or resources.” In describing barriers or challenges related to necessary systems or resources, a State should reference specific elements in section II.K.3 of this IFC (Systems Changes Needed to Implement Community Engagement). To support our understanding of the scope of the barriers and challenges, a State should, where possible, provide data or otherwise quantify the noted barriers and challenges.

At Sec. 435.560(b)(3), we implement the third criterion, which requires the State to provide a detailed plan and timeline for fully implementing the community engagement requirement. The plan and timeline must, at a minimum, include key milestones towards full compliance and planned steps to address any challenges identified by the State as part of its request. The plan and timeline must also provide sufficient detail to allow CMS to meaningfully assess the State's progress over time.

The statute's fourth criterion permits CMS to identify additional criteria for assessing whether a State has demonstrated a good faith effort to implement the community engagement requirement. At Sec. 435.560(b)(4), we add an additional criterion, that permits CMS to take into consideration any exigent circumstances that States might encounter, such as when there is an administrative or other emergency beyond the State's control, like a cybersecurity incident or natural disaster.

Good faith effort exemptions will be considered on a case-by-case basis and will be approved for States that demonstrate they have a detailed work plan and have been diligently making demonstrable progress on that work plan throughout 2026. In general, as part of any request for a good faith effort exemption, we anticipate providing technical assistance on a State's detailed plan and timeline for achieving full compliance. Additionally, we expect that approvals of good faith effort exemptions will be limited to States that demonstrate meaningful effort towards implementation and experience extraordinary, severe, or unexpected issues that hinder their progress. c. Duration of Exemption

At Sec. 435.560(c), we implement section 1902(xx)(11)(C), which requires that good faith effort exemptions expire no later than December 31, 2028.

CMS will evaluate each request individually, and if an exemption is granted, determine an appropriate end date for the exemption based on the specific circumstances of the State, as reflected in the State's request and subsequent communication between CMS and the State. The duration of a good faith effort exemption is intended to be short-term in nature, as we expect States to have already made good faith efforts towards timely implementation of community engagement by the time a State submits a request for a good faith effort exemption. Reflecting these considerations, at Sec. 435.560(c)(1), we note that CMS expects to approve initial requests for no longer than 6 months. However, we may grant extensions, until no later than December 31, 2028, provided that the State continues to demonstrate a good faith effort to meet all applicable requirements. We will rely on information reported in accordance with Sec. 435.560(d) to determine if the duration of the good faith effort exemption warrants an extension.

At Sec. 435.560(c)(4), we emphasize that CMS may end an exemption if a State does not meet reporting requirements described at Sec. 435.560(d) or the State no longer demonstrates a good faith effort towards implementing the community engagement requirement.

For the duration of the good faith effort exemption, if granted, CMS will not deem a State to be noncompliant with the requirements of section 1902(xx) of the Act, nor subject the State to corrective actions under section 1904 of the Act, as long as the State meets the reporting requirements and continues to make good faith efforts towards compliance, including by demonstrating continued and consistent progress towards implementation. d. Reporting Requirements for States Granted Good Faith Effort Exemptions

As a condition of receiving a good faith effort exemption, States must meet reporting requirements described at Sec. 435.560(d), which implements section 1902(xx)(11)(D) of the Act. These reporting requirements have two components: (1) quarterly reports on the status of the milestones the State provided on the detailed plan and timeline for achieving full compliance, per Sec. 435.560(b)(3); and (2) information on specific risks or newly identified barriers or challenges to full compliance, including the State's plan to mitigate such risks, barriers, and challenges. For the first component, we anticipate establishing a deadline for quarterly reporting submissions in future guidance. We interpret that the second reporting component encompasses information the State wishes to make CMS aware of as well as information that CMS requests. The details, form, and cadence of these information requests will be specific to the State's circumstances, and could include requests for data, operational details, and reporting on a more frequent basis. If a State that receives a good faith effort exemption fails to meet these reporting requirements, CMS may end the exemption in accordance with Sec. 435.560(c)(4), and the State may be subject to corrective action under section 1904 of the Act, based on findings that the State failed to comply substantially with section 1902 of the Act in the administration of the State plan.

Section 1902(xx)(8) of the Act, which we implement at new Sec. 435.561 of the regulation, requires States, to notify enrolled applicable individuals of the requirement to demonstrate community engagement in accordance with standards specified by the Secretary. States must begin this outreach “not later than the date that precedes December 31, 2026, or, if the State elects to specify an earlier date, such earlier date, by the number of months specified by the State at section 1902(xx)(1)(A) of the Act plus 3 months, and periodically thereafter.” Such notices must include information on: (1) how to comply with the community engagement requirement, including an explanation of the exceptions under section 1902(xx)(3) of the Act and the definition of the term “applicable individual” under section 1902(xx)(9)(A)(i) of the Act; (2) the consequences of noncompliance; and (3) how to report to the State any changes to the individual's status that could result in the applicability or end the applicability of an exception under section 1902(xx)(3) of the Act or the individual qualifying as a specified excluded individual defined at section 1902(xx)(9)(A)(ii) of the Act. The outreach notice must be provided through at least two modalities: regular mail (or, if elected by the individual, in an electronic format) and in one or more additional modalities, which may include telephone, text message, an internet website, other commonly available electronic means, and other forms as the Secretary determines appropriate.

The regulations at Sec. 435.905(a) require States to furnish information to all applicants and other individuals who request it about the eligibility requirements, available Medicaid services, and the rights and responsibilities of applicants and beneficiaries. States must furnish this program information in electronic and paper formats, and orally as appropriate. The regulations at Sec. 435.1200(f) also require States to make available to current and prospective Medicaid applicants and beneficiaries a website that supports applicant and beneficiary activities, including accessing information on insurance programs available in the State.

In this section, we establish new Sec. 435.561 to implement section 1902(xx)(8) of the Act. We discuss which individuals the State must notify of the community engagement requirement, how frequently States must conduct outreach, the modalities States must use to provide outreach notices, and how States may coordinate the outreach notice with other notices.

We require States at Sec. 435.561 to notify individuals who are eligible to enroll or are enrolled under Sec. 435.119 of the requirements to demonstrate or be deemed to demonstrate community engagement as required under section 1902(xx) of the Act. In addition to such individuals, States must also notify individuals who otherwise are eligible to enroll or are enrolled in coverage under an applicable section 1115 demonstration. While section 1902(xx)(8)(A) of the Act requires States to notify enrolled applicable individuals of the community engagement requirement, we believe it is necessary and appropriate to require that the initial and periodic outreach notification be provided to all individuals enrolled in the adult group described at Sec. 435.119 or in an applicable section 1115 demonstration, rather than only to applicable individuals defined at Sec. 435.551, since the status of an individual can change and render one subject to the community engagement requirement. We believe that the required outreach notification and the content of the outreach notification required by section 1902(xx)(8) of the Act contains information relevant to applicable individuals described at Sec. 435.551 and specified excluded individuals described at Sec. 435.554. In addition, we believe States would not be able to determine which enrolled beneficiaries meet the definition of an “applicable individual” at section 1902(xx)(9)(A)(i) of the Act to target the initial outreach notices to such individuals prior to the effective date of the community engagement requirement in the State. We, therefore, did not limit the outreach requirements at Sec. 435.561 to applicable individuals described at Sec. 435.551. However, as we explain below in our discussion of the content of the outreach notice, not every individual who receives an outreach notice will be required to comply with the community engagement requirement. States will need to include clear, consumer-friendly information in the outreach notice to help individuals understand who qualifies for an exception or is a specified excluded individual and that additional actions would not be needed by such individuals to demonstrate compliance.

Under Sec. 435.905(a), States must provide applicants and all other individuals who request it, information on eligibility requirements and the rights and responsibilities of applicants and beneficiaries, which will now include information on complying with the community engagement requirement as a component of the eligibility information. To satisfy this requirement, we also interpret the community engagement outreach requirement at Sec. 435.561(a) to require outreach notices be provided to the affected individual. Section 1902(xx)(8)(A) of the Act states that “the State shall notify applicable individuals enrolled under a State plan (or waiver) under this title of the requirement to demonstrate community engagement.” We interpret such requirements to mean that States must

direct the content in the outreach notice specifically to the individuals who must receive the notice rather than to the general public. A general, public notice, such as a web page about the community engagement requirement, would not satisfy the outreach requirement at Sec. 435.561. This targeted approach ensures that affected individuals are aware of the applicability of the community engagement requirement. States must also provide information on eligibility requirements, including community engagement, to all other individuals who request it per Sec. 435.905(a).

We recognize that the general public may not be aware of the forthcoming community engagement requirement in Medicaid, which may affect eligibility for future applicants. States must make program information available on their public website described at Sec. 435.1200(f), which must include information related to community engagement. While we are not requiring States to engage in additional public outreach efforts, we encourage States to consider general public outreach as part of their efforts to implement the community engagement requirement. These additional public outreach efforts can complement the required outreach notices and raise broader community awareness of the new community engagement requirement. We also encourage States to use existing tools and to partner with interested parties and networks to disseminate resources and offer multiple channels to individuals to learn about and navigate the requirement. These may include but are not limited to aging and disability networks, hospitals, Federally qualified health centers, rural health clinics, provider networks, schools, churches and other religious institutions, managed care plans, and other community-based organizations.

We require States at Sec. 435.561(b)(1) to conduct outreach prior to January 1, 2027, or an earlier implementation date specified by the State in accordance with Sec. 435.559. States that later elect to implement the adult group under Sec. 435.119 must also conduct outreach about the community engagement requirement prior to the effective date of the adult group in the State plan. Similarly, States that implement the community engagement requirement in a section 1115(a)(2) demonstration project under section 1902(xx)(9)(A)(i)(II) of the Act must conduct outreach prior to the implementation date of the demonstration project expenditure authority. We interpret the statute to require outreach notices to be provided 3 months prior to the date the community engagement requirement becomes effective in the State plus the number of months specified by the State for applicants to demonstrate compliance with the community engagement requirement under Sec. 435.556(a)(1). This will result in States needing to send outreach notices to beneficiaries in the fourth, fifth, or sixth month prior to the date in which the community engagement requirement becomes effective. For example, in States with effective dates of January 1, 2027, States will need to send initial outreach notices in July 2026, August 2026, or September 2026, depending on whether the State elects for applicants to demonstrate they meet the community engagement requirement in the 3 months before, 2 months before, or 1 month before the month in which application is made. Table 2 depicts this and additional examples. [GRAPHIC] [TIFF OMITTED] TR03JN26.020

New Sec. 435.561(b)(1) and (b)(2) require States to send notices to beneficiaries 4, 5, or 6 months prior to the community engagement requirement becoming effective in the State and to send the notices to beneficiaries who apply and enroll after the initial outreach notice is sent but before the community engagement requirement becomes effective in the State. This will ensure beneficiaries who newly enroll in the adult group described at Sec. 435.119 or an applicable section 1115 demonstration will be made aware of the requirement. We also require States to notify all individuals described at Sec. 435.561(a) on a periodic basis thereafter and outline when States must provide outreach notices through at least two modalities on an ongoing basis at Sec. 435.561(d). Under the authority given to the Secretary to specify standards for outreach notices, we define “periodic basis thereafter” to mean that for individuals described at Sec. 435.561(a), outreach notices must be provided: (1) following a determination or redetermination of eligibility at application, at renewal described at section 1902(e)(14)(L) of the Act and Sec. 435.916, and based on a change in circumstances; (2) when the State elects the short-term hardship exception in the State plan under Sec. 435.555(a); (3) each time a short-term hardship exception relating to an event described at Sec. 435.555(d)(2) becomes available to applicable individuals or the State effectuates the short-term hardship event described at Sec. 435.555(d)(3); (4) when the State reduces a beneficiary's eligibility and sends advance notice for: the deselection of the short-term hardship exception under Sec. 435.555(a); the anticipated expiration of a short-term hardship event described at Sec. 435.555(d)(2) and (3); and the loss of a beneficiary's specified excluded individual status under Sec. 435.554; and (6) upon request by CMS, if State- reported monitoring data described at Sec. 435.562 or other information indicates a need for increased outreach or a potential compliance issue with Sec. Sec. 435.550 through 435.562, consistent with Sec. 435.562(e). We believe this will allow States to align outreach notices with eligibility determination notices under Sec. 435.917, since States must already provide information to individuals about their eligibility and rights and responsibilities. For example, States may align such notices by

combining the content of the outreach notice with the eligibility determination notice or send a separate outreach notice when an eligibility determination notice is issued. We also believe this approach will allow States to keep individuals updated about changes in the State's short-term hardship exception policy with less burden by utilizing the outreach process already required by section 1902(xx)(8) of the Act. Finally, we believe that this will allow States to provide additional outreach, if requested by us, when States' community engagement monitoring data indicate potential problems or concerning trends, such as if a State is experiencing large shifts in month-over- month determination and redetermination outcomes, or greater disenrollments for procedural denials compared to other States. For more information about the monitoring data States must submit and about our approach to identifying potential compliance issues that could result in additional outreach, see section II.O. of this IFC. While we are requiring States to conduct ongoing, periodic outreach each time an individual described at Sec. 435.561(a) is provided an eligibility determination notice, States may choose to conduct additional outreach to individuals on an ad hoc or routine basis.

We considered defining outreach on a “periodic basis thereafter” to mean that States must conduct outreach upon enrollment for applicants determined eligible and at least every 6 or every 12 months thereafter for beneficiaries described at Sec. 435.561(a) to provide a consistent time frame for all beneficiaries to receive outreach. While such a definition would provide consistency for all individuals and across all States, we recognize this could result in outreach that may not be meaningful as it was not necessarily aligned with the timing of the eligibility information that must already be provided when someone receives an eligibility determination notice. We also considered specifying when States should conduct periodic outreach in 2027 and 2028 or the first two years of implementation and then later permitting States to determine how frequently periodic outreach should occur after the first few years of implementation. While this would allow States to determine when it would be most effective to conduct outreach, we were concerned that this may increase the likelihood that CMS would need to request additional outreach based on monitoring data if States did not conduct outreach frequently enough. We seek public comment on whether CMS should establish a different frequency for periodic outreach. We also seek public comment on whether we should allow States to define what it means to conduct outreach on a “periodic basis” in the future.

At Sec. 435.561(c), we require that outreach notices must be provided in a manner consistent with Sec. 435.905(b), to align with requirements for all other program information and notices. To align with section 1902(xx)(8)(A) of the Act and ensure that individuals are notified of their rights and responsibilities in accordance with Sec. 435.905(a), we also specify that the notice content must inform individuals of the following three types of information:

1. How to comply with the requirement to demonstrate community engagement as described at Sec. 435.561(c)(1). This includes: (1) an explanation of the exceptions, including short-term hardship exceptions, if elected by the State; (2) who is an applicable individual, including an explanation of exclusions from such definition under Sec. 435.554; (3) the number of months an applicable individual is required to demonstrate community engagement during the review period at renewal; and (4) if elected by the State, how frequently the State will periodically verify community engagement in between renewals.

2. The consequences of noncompliance with the community engagement requirement on eligibility for Medicaid and for APTC and PTC used to pay for coverage on a Health Insurance Exchange.

3. How to report to the State any change in the individual's status that could result in someone qualifying or no longer qualifying for an exception, short-term hardship, or being considered a specified excluded individual described at Sec. 435.554.

As part of describing how to comply with the community engagement requirement, States must include information about how an applicable individual may demonstrate compliance with community engagement as required under Section 1902(xx)(2) of the Act and described further in section II.C. of this IFC. This includes providing information on the types of activities that demonstrate community engagement, such as types of community service activities that count towards the community engagement requirement. The outreach notices must provide clear, consumer-friendly information to help individuals understand if they qualify for an exception to the community engagement requirement (which means they will be deemed compliant) or if they are a specified excluded individual (in which case, they would not be required to demonstrate compliance). Some individuals, particularly family caregivers or those who are medically frail, may not identify themselves as meeting an exception or exclusion if the State does not provide clear communication about how the exceptions and exclusions are defined. For individuals who qualify as specified excluded individuals, States will also need to clearly communicate that for such individuals, additional actions to demonstrate compliance are not required at that time.

Additionally, we remind States that while the outreach notice must inform individuals how to report changes in their status, a change is not necessarily a change in circumstances that may affect the individual's eligibility, as discussed in section II.H.3.d. of this IFC. States must accept updated information from beneficiaries the same way they would accept other information reported by the beneficiary even if it does not impact eligibility, such as a change of an in-State address.

We require States at Sec. 435.561(d)(1) to provide the outreach notice by regular mail or, if elected by the individual, in an electronic format consistent with Sec. 435.918. If an individual has elected to receive notices and communications electronically, the State must post the outreach notice described at Sec. 435.561(d)(1) via the individual's preferred electronic format. We specify at Sec. 435.561(d)(2) that outreach notices must also be provided in at least one or more additional modalities, which means the individual must receive their outreach notification via at least two different modalities, including via the individual's electronic account, by telephone, by text message, or through other commonly available electronic means. For an individual who elected to receive electronic notices and communications consistent with Sec. 435.918, the State cannot use that same electronic modality as the additional modality to satisfy the requirement at Sec. 435.561(d)(2). For example, if a State posts the outreach notice to an individual's electronic account consistent with Sec. 435.561(d)(1) and as elected by the individual, the additional modality for the additional notice at Sec. 435.561(d)(2) cannot also be the individual's electronic account. At this time, we have not identified any specific commonly available electronic means through which States may send

an outreach notice, nor do we prescribe any additional modalities for States in this IFC.

We interpret the “internet website” modality at section 1902(xx)(8)(B)(ii) to mean the individual's electronic account available through an internet website, as opposed to the State agency's public facing website. As stated earlier in this section, we interpret that the outreach notices required by section 1902(xx)(8) of the Act must be targeted to the individual rather than the general public. For individuals who do not have an electronic account, the State must use a different modality to satisfy the requirement at Sec. 435.561(d)(2), which may include telephone, text message, or other commonly available electronic means. States are reminded that general program information, including the community engagement requirement, must be separately posted to the State agency's websites in accordance with Sec. 435.905(a).

Section 1902(xx)(8) of the Act does not preclude States from including the outreach notice described in this section or incorporating the content of the outreach notice in another notice or communication that the State provides to the individual. For example, States may include the outreach notice content with the eligibility determination notice provided when an individual is redetermined eligible at renewal. This would meet the State's requirement for periodically notifying an individual of the community engagement requirement when an individual redetermined eligible at renewal. As such, we specify at Sec. 435.561(e)(1) that States may include the outreach notice required at Sec. 435.561(a) with an eligibility determination notice described at Sec. 435.917 or with other communication from the State to the individual.

Section 1902(xx)(8) of the Act does not limit State flexibility to use managed care plans \114\ to assist in the administrative activity of providing an outreach notice “in one or more additional forms.” In 2024, over 80 percent of all Medicaid beneficiaries received some or all of their covered services through a managed care plan.\115\ To ensure that the outreach notices are provided timely and consistently, we believe that States may find it beneficial to utilize their managed care plans to assist with providing the periodic outreach notices in one or more of the additional modalities specified at Sec. 435.561(d)(2). We permit States at Sec. 435.561(e)(2) to utilize managed care plans to provide the outreach notice periodically, consistent with Sec. 435.561, through one or more of the modalities described in paragraph Sec. 435.561(d)(2). States that elect to do this are expected to direct their managed care plans on which individuals must receive the outreach notice, how frequently such individuals must receive such notice, and the exact content of such notice as required under Sec. 435.561. Section II.M. of this IFC provides additional information about the roles managed care plans can play in helping States accurately implement and ensure compliance with the community engagement requirement, as well as the activities that managed care plans are prohibited from participating in.

\114\ As used in this document, “managed care plan” means a managed care organization (MCO), prepaid inpatient health plan (PIHP), or prepaid ambulatory health plan (PAHP), as defined in Sec. 438.2.

\115\ “Medicaid Managed Care Enrollment and Program Characteristics, 2024.” CMS https://www.medicaid.gov/medicaid/managed-care/downloads/2024-medicaid-managed-care-enrollment-report.pdf.

As discussed in section II.L. of this IFC, managed care plans can play an important role in helping States accurately implement and ensure compliance with the community engagement requirement. States may elect to utilize their managed care plans to provide or enhance certain activities that leverage their plans' relationship with their enrollees to maximize the effectiveness and timeliness of the activity. For example, States could use their managed care plans to conduct outreach and educate Medicaid managed care enrollees on the community engagement requirement or to share data they possess about enrollees with the State to inform States' determination of the applicability of the community engagement requirement to specific enrollees. We believe data sharing will be particularly critical for ensuring that States have the most current information on enrollees' circumstances such as medically frail status or drug addiction or alcoholic treatment and rehabilitation program participation.

States can also allow managed care plans to refer or provide Medicaid managed care enrollees with additional services and assistance, although many such services and assistance (including all the examples included in this paragraph) cannot be considered in the development of capitation rates. For example, managed care plans could refer managed care enrollees to work programs sponsored by States or Federal government agencies that are administered at American Job Centers. As discussed in section II.C.3. of this preamble, our regulation at Sec. 435.552(b) defines a “work program” as one that meets the definition in section 6(o)(1) of the Food and Nutrition Act of 2008. Foror an employment and training program under subsection (d)(4) of the Food and Nutrition Act of 2008, supervised job search or job search training is permitted as a subsidiary activity, as long as the job search activity is less than half of the required hours. Generally, Medicaid-covered employment services are not work programs that meet this definition. We believe that some managed care plans may undertake a variety of enrollee outreach and education processes. For example, managed care plans could provide education on work program appointment preparation and document collection, establish feedback loops with work programs to enable managed care plans to follow up with enrollees. We encourage managed care plans to ensure that any activities or services provided align with the community engagement requirement and meaningfully help enrollees who are applicable individuals meet the community engagement requirement. While the costs for these types of activities cannot be included in the development of capitation rates nor counted as value-added services, if plans voluntarily elect to provide services that meet the definition of a value-added service under Sec. 438.3(e)(1), the services could be included in the medical loss ratio (MLR) numerator as incurred claims.\116\

\116\ 42 CFR 438.8(e)(2)(i)(A).

Many States may expand existing work programs or develop new ones that comply with our definition at Sec. 435.552(b), which incorporates the definition in section 6(o)(1) of the Food and Nutrition Act of 2008, to help enrollees meet the community engagement requirement. Many States may also be working with institutions of higher education to develop new, high-quality, short-term training programs that may be eligible for Pell grants under the newly expanded program pursuant to title VIII, subtitle D of the WFTC legislation. We encourage managed care plans to collaborate with States to determine what role they could play to support States' efforts. At a minimum, managed care plans should ensure that any activities or services that they implement related to community engagement are consistent with and promote work programs that comply with our definition at Sec. 435.552(b).

While partnering with managed care plans to enhance a State's

implementation of the community engagement requirement may be an effective mechanism, certain Federal requirements (including Sec. 438.5(e)) limit what can be included in the non-benefit component of capitation rates. When costs for administrative activities are included within a capitation payment, expenditures are matched at the Federal Medical Assistance Percentage (FMAP),\117\ which is typically higher than the Federal match rate for State administrative activities in support of the State plan. States cannot delegate activities to managed care plans that are unrelated to the provision of Medicaid-covered services, in accordance with the contract established between the State and managed care plan that is reviewed and approved by CMS under Sec. 438.3(a), or other activities that would be unreasonable to include in capitation rates that are eligible for FMAP. For example, States cannot delegate activities to conduct tracking or information gathering that are not related to the provision of Medicaid-covered services, such as the collection of information on work, community service, or education activities. States would also not be able to use their managed care plans to issue formal notifications to Medicaid beneficiaries regarding noncompliance with the community engagement requirement. States and their actuaries must ensure that any costs associated with the non- benefit component of a capitation rate complies with all Federal requirements, including Sec. Sec. 438.4 and 438.5.

\117\ 42 CFR 438.812.

Section 71119(c) of the WFTC legislation provides a conflict-of- interest safeguard that explicitly prohibits States from using certain entities, including Medicaid managed care entities,\118\ to determine enrollee compliance with the community engagement requirement. To implement this prohibition, we are amending Sec. 438.58. We redesignate the current text at Sec. 438.58 as paragraph (a) and add a new paragraph (b). In new paragraph (b), we specify that a State may not use an MCO, PIHP, PAHP, or other contractor to determine beneficiary compliance with the community engagement requirement in part 435, subpart F of this title, unless the entity is not, and has no direct or indirect financial relationship with, an MCO, PIHP, or PAHP that is responsible for providing or arranging for covered services for individuals enrolled with it under its contract with the State. This provision is consistent with conflict-of-interest protections applied to enrollment brokers and their subcontractors as specified at Sec. 438.810(b)(2)(i). We believe this prohibition is an important safeguard to prevent program integrity concerns in the implementation of the community engagement requirement. Additionally, we remind States that under sections 1902(a)(4) and (a)(5) of the Act and implementing regulations in Sec. 431.10, determining Medicaid eligibility may be delegated only to governmental agencies that maintain personnel standards on a merit basis.

\118\ Section 1903(m)(9)(D) of the Act.

Sections 1920, 1920A, 1920B, and 1920C of the Act provide States with the option to designate “qualified entities” who are able to make presumptive eligibility (PE) determinations for pregnant women, children, certain breast and cervical cancer patients, and family planning services. States that have adopted this policy for children or pregnant women have the option to extend it to certain other groups covered under the State plan, including the adult group, under section 1920(e) of the Act (implemented at Sec. 435.1103(b)).

Section 1902(a)(47)(B) of the Act provides that all hospitals enrolled as a Medicaid provider may elect to be a qualified entity able to determine PE for Medicaid, subject to the same procedures and requirements as are applied to determinations by qualified entities of PE for pregnant women, children, or certain breast and cervical cancer patients, whether or not the State has elected to designate qualified entities to make PE determinations for any such individuals. We refer to the option provided to hospitals as “hospital presumptive eligibility” (HPE). States that cover the adult group in the State plan must allow HPE for this group (Sec. 435.1110(c)(1)).\119\ States may allow hospitals to determine PE for other groups approved under the State plan, or those whose eligibility is established by section 1115 demonstration authority (Sec. 435.1110(c)(2)).

\119\ States may allow hospitals to determine presumptive eligibility for other groups, such as those whose eligibility is established by section 1115 demonstration authority. If the population in the section 1115 demonstration includes applicable individuals and the State elects to cover PE/HPE for this demonstration population in the State plan; the State must follow the same guidance as laid out in this section as it relates to the adult expansion population and PE/HPE.

Section 1902(xx)(1) of the Act establishes a new condition of eligibility for applicable individuals in the State plan adult group or those eligible for or enrolled under a waiver of such plan. Specifically, a State shall provide, as a condition of eligibility for medical assistance for an applicable individual, that such individual is required to demonstrate or be deemed as demonstrating community engagement. Section 1902(xx)(2) of the Act, implemented at Sec. 435.552, sets out the qualifying activities that an applicable individual can use to meet the community engagement requirement. Section 1902(xx)(3)(A) of the Act establishes mandatory exceptions for certain applicable individuals implemented at Sec. 435.553. Section 1902(xx)(3)(B) of the Act provides States the option to offer short- term hardship exceptions, implemented at Sec. 435.555. Both mandatory and optional short-term hardship exceptions would deem an applicable individual as demonstrating community engagement. Section 1902(xx)(9) of the Act defines specified excluded individuals, who are not applicable individuals and are not subject to the community engagement requirement, implemented at Sec. 435.554.

The community engagement requirement applies when an individual completes a full Medicaid application and when an individual applies for PE and HPE and appears to be eligible in the adult group. If a State has elected to cover a section 1115 demonstration population in HPE, and that population includes applicable individuals, the community engagement requirement applies to those HPE determinations as well. Therefore, all HPE programs in States that have adopted the adult group, that have elected the option to cover a section 1115 demonstration population that includes applicable individuals, and that have elected optional PE programs for the adult group will need to include the community engagement requirement as a factor of eligibility in the PE determination. For those individuals who appear to be eligible in the adult group or in an applicable section 1115 demonstration population, qualified entities must assess and obtain an attestation as to whether the individual appears to be a specified excluded individual (at Sec. 435.554), an applicable individual, or meets a mandatory or optional exception (at Sec. Sec. 435.553 or 435.555, respectively). The State determines if someone is a specified excluded individual or an applicable individual based on the month of application, as a State does when evaluating other factors of eligibility (Sec. 435.554). If the applicant is an

applicable individual (thus does not meet any specified excluded individual criteria) and does not qualify for a mandatory or, if applicable, optional exception, the qualified entity must assess whether the applicant demonstrated community engagement prior to the month of application for the number of months elected by the State, as specified in the State plan and defined at Sec. 435.556.

The new requirement to condition Medicaid eligibility on demonstrating community engagement or being deemed as demonstrating community engagement because of an exception only applies to applicable individuals, and not to those who are specified excluded individuals. As described in detail at Sec. 435.556, applicable individuals must demonstrate or be deemed as demonstrating community engagement at least 1 but not more than 3 consecutive months, as specified by the State, immediately preceding the month of application. Therefore, an applicable individual who applies for PE or HPE must attest they demonstrate community engagement, at a minimum for the month prior to the PE or HPE application, and up to 3 consecutive months prior at State option or qualify for an exception for those month(s) which deems them as demonstrating community engagement. Those that meet the criteria to be a specified excluded individual are demonstrated in the month of application.

Due to the new requirement, States will need to update PE and HPE training materials, train qualified entities on the requirement, and update PE and HPE application materials, including eligibility determination notices, to capture this information. These updates should include information on how providers can assess who is an applicable individual and who is a specified excluded individual. Once that is determined, providers will need to determine if an applicable individual meets exception criteria. In addition, applicable individuals who do not qualify for an exception must then be screened to identify the ways in which they may have demonstrated community engagement. The new questions should only be requested of those who appear eligible in the adult group or, if applicable, a section 1115 demonstration population that includes applicable individuals in a State that has elected to cover that group in HPE, and who could be considered an applicable individual. Determinations of PE and HPE, including whether an individual is a specified excluded individual or demonstrates or is deemed to have demonstrated the community engagement requirement, must continue to be based on attested information from the applicant per sections 1920, 1920A, 1920B, 1920C, and 1902(a)(47)(B) of the Act. 2. Additional Considerations for Section 1115 Demonstrations

As further described in section II.B. of this IFC, populations eligible for or enrolled in specific demonstration coverage authorized by an expenditure authority under section 1115(a)(2) of the Act that provides MEC to individuals who are at least 19 and under 65 years of age, are not pregnant, are not entitled to or enrolled for benefits under Medicare part A or part B, and are not otherwise eligible to enroll under the State plan, may qualify as applicable individuals and would be subject to the community engagement requirement (unless they are specified excluded individuals). Section 1902(xx)(10) of the Act further specifies that waiving the community engagement requirement under section 1115(a) of the Act is prohibited. We will not approve a section 1115 demonstration project that waives, in whole or in part, the new community engagement provisions of section 1902(xx) of the Act. Furthermore, any State seeking to implement the community engagement provisions of section 1902(xx) of the Act through section 1115 demonstration authority must ensure compliance with each of the requirements of section 1902(xx) of the Act. These limitations are implemented at Sec. 435.563.

Section 1902(a)(6) of the Act and implementing regulations at Sec. 431.16 require States to submit all reports required by the Secretary, in such form and containing such information as instructed by the Secretary, and to comply with provisions necessary to assure the correctness and verification of such reports. In addition, section 1902(a)(75) of the Act requires States to submit a report that contains any other data reporting determined necessary by the Secretary to monitor enrollment and retention of individuals eligible for medical assistance under the State plan or under a waiver of the plan. Under section 1904 of the Act, the Secretary may take corrective action to limit Federal payments, after reasonable notice and opportunity for hearing, based on findings that the State failed to comply substantially with section 1902 of the Act in the administration of the plan. We interpret the statutory requirements in sections 1902(a)(6) and (a)(75) of the Act to provide authority to require States to submit data that allow for monitoring of their eligibility and enrollment processes. Under these authorities, States already routinely submit eligibility and enrollment data to CMS on a monthly, basis through three established data collection efforts: the Medicaid and CHIP Performance Indicator (PI) data, the Medicaid and CHIP Eligibility Processing (EP) data, and the Transformed Medicaid Statistical Information System (T-MSIS) data. These data sets provide CMS, States, and the public increased insight and transparency into State Medicaid and CHIP eligibility and enrollment operations, and the data allow CMS to identify potential compliance or program integrity issues to rapidly engage with State agencies.

As described in this IFC, the community engagement requirement under section 1902(xx) of the Act will impact eligibility and enrollment for those subject to it, and we believe that States' processing of eligibility and enrollment actions for all other applicants and beneficiaries may be indirectly impacted as States implement requirements in this IFC to verify that an individual demonstrates or is deemed as demonstrating community engagement or is a specified excluded individual. Under authority in sections 1902(a)(6) and (a)(75) of the Act, we are requiring in this IFC at Sec. 435.562 that States submit timely, complete, and accurate data (data of sufficient quality) to support monitoring of State eligibility and enrollment operations concerning the implementation and impact of the community engagement requirement. This data reporting will assist CMS to maintain high levels of program integrity to ensure States implement the community engagement requirement under section 1902(xx) of the Act and maintain timely and accurate determinations and redeterminations of eligibility for all applicants and beneficiaries.

To the extent possible, we will develop a community engagement report using existing data elements reported by States through the PI, EP, and T-MSIS data collection efforts, and States will use the same submission portals currently used for any modified or new data collection gathered through the PI, EP, and T-MSIS data sets. We anticipate that there will be a need to modify existing data elements in these data sets or create new, additional data elements in key categories described further in this section to capture data that reflect activities associated with implementation of and the impact of the community engagement requirement. While this IFC outlines the requirement for States to submit data for monitoring

of the community engagement requirement, we will notify States of any specific updates to existing data elements or new data elements through existing PI, EP, and T-MSIS communications for these data collection efforts and related data dictionaries or technical specifications documents. In addition, any modified or new data elements to these existing data collection efforts will be subject to public review and comment processes established under the Paperwork Reduction Act.

We expect States to report timely, complete, and accurate data to monitor community engagement, and in this IFC at Sec. 435.562(b), we define terms that describe how States must submit data and ensure the quality of data collected that will be used to monitor community engagement under section 1902(xx) of the Act. We define the term “timely,” at Sec. 435.562(b)(1) to mean that all data for community engagement monitoring are submitted according to the cadence and not later than the deadline specified by CMS. We define the term “complete” at Sec. 435.562(b)(2) to mean that all required community engagement data are reported by the State. We define the term “sufficient quality” at Sec. 435.562(b)(3) to mean that all required data elements are reported in a form and manner that adheres to specifications prescribed by CMS.

In Sec. 435.562(c), we establish that States must provide timely and complete data that is of sufficient quality to monitor enrollment, retention and eligibility processes for community engagement activities that begin January 1, 2027, (or earlier date specified by the State). In Sec. 435.562(d), we require that States submit data elements for applicants and beneficiaries applying for and receiving medical assistance, including individuals subject to the requirements of section 1902(xx) of the Act through five specified categories. These five specified categories are: (1) enrollment totals of individuals applying for and receiving medical assistance; (2) application and renewal processing, timeliness, and backlogs; (3) outcomes of determinations and redeterminations eligibility; (4) populations subject to and their compliance with the requirements of section 1902(xx) of the Act; and (5) other such data specified by CMS in regulation, guidance, or technical specifications to monitor implementation and the impact of community engagement.

We also notify States in Sec. 435.562(e) that failure to submit data or submission of data that indicate compliance issues may result in corrective action under section 1904 of the Act, additional data collection, or additional outreach noticing as described at Sec. 435.561(b). In Sec. 435.562(e)(1) and (2), States may be subject to such actions if reported data are not timely, complete, or of sufficient quality (as defined in this section), if reported monitoring data indicate a failure to comply substantially with section 1902(xx) of the Act, or determination and redetermination outcomes indicate a need for increased outreach. This includes when data indicate program integrity issues, such as determination outcomes in a State that would make them an outlier, like large percentages of individuals who are excluded or meet a particular exclusion or exception. When reviewing data for evidence of compliance issues, we will review data trends within a State month-over-month as well as how a State's data compare to analogous data from other States to determine whether additional information from the State is needed to understand and interpret the data. We will assess whether further outreach or compliance action may be necessary based on findings identified through this data-driven, interactive process with the State and will provide reasonable notice and opportunity for hearing before any financial withholding is taken under section 1904 of the Act. We will also assess the monitoring data and determine if additional beneficiary outreach is necessary in a State that reports outcome data, such as higher numbers of procedural terminations at renewal compared to other States, that suggest such action may be needed to ensure beneficiaries understand how to demonstrate community engagement.

For the reasons described in this section, we have determined that an IFC is the appropriate mechanism to implement section 1902(xx) of the Act. Although this IFC is effective in 60 days, comments are solicited from interested members of the public on all aspects of the IFC. We will consider these comments in deciding the next steps following this IFC.

Under the Administrative Procedure Act (APA) (5 U.S.C. 553(b)(B)), CMS may forgo notice-and-comment rulemaking when it finds, for good cause, that such procedures are impracticable, unnecessary, or contrary to the public interest.

Section 71119(d) of the WFTC legislation directs that not later than June 1, 2026, the Secretary of HHS shall issue an interim final rule for purposes of implementing section 71119 of the WFTC legislation, related to community engagement for certain adults. It also explicitly notes that any action taken to implement section 71119 of the WFTC legislation is not subject to the provisions of 5 U.S.C. 533, which generally requires Federal agencies to follow notice and comment of proposed rulemaking procedures. We also recognize that States must implement the community engagement requirement no later than January 1, 2027, and therefore need time to understand the requirements and expectations and build systems and operations to ensure timely compliance. We find that there is good cause based on the totality of these circumstances to forgo notice-and-comment rulemaking. The express exemption from the provisions of 5 U.S.C. 553 and the need to provide States with time to implement the community engagement requirement by January 1, 2027, demonstrate that undergoing notice-and- comment rulemaking is impracticable, unnecessary, and would be contrary to the public interest. Restoring the regulations affected by the section 71102 moratorium until October 1, 2034, also aligns with the directive in section 71119(d) of the WFTC legislation, which explicitly notes that any action taken to implement section 71119 of the WFTC legislation is not subject to the provisions of 5 U.S.C. 533. As noted in section II.A. of this IFC, the restoration of the regulations in this IFC while the moratorium is in effect is necessary to establish an enforceable community engagement requirement. As such, notice-and- comment rulemaking is impracticable and unnecessary simply to restore eligibility and enrollment policies relied on by the regulations implementing section 71119 for the duration of the moratorium.

While under these specific circumstances we find good cause for issuing this IFC prior to a public comment period, we are committed to considering public input. We invite comments on this IFC and future rulemaking. Comments received by the date specified in the DATES section of this IFC will be considered.

To derive average costs, we used data from BLS' May 2024 National Occupational Employment and Wage Estimates for all salary estimates (https://www.bls.gov/oes/tables.htm). In this regard, Table 3 presents BLS' mean hourly wage, our estimated cost of fringe benefits and other indirect costs (calculated at 100 percent of salary), and our adjusted hourly wage. [GRAPHIC] [TIFF OMITTED] TR03JN26.021

For States and the private sector, the employee hourly wage estimates have been adjusted by a factor of 100 percent. This is a rough adjustment, because both fringe benefits and other indirect costs vary significantly across all employers, and because methods of estimating these costs vary widely across studies. Nonetheless, we believe that doubling the hourly wage to estimate the total cost is a reasonably accurate method. 2. Beneficiaries

To calculate the costs for beneficiaries undertaking administrative and other tasks on their own time we use the opportunity cost of time. Following the White House Council of Economic Advisers (2019) \120\, we estimate the gap between the marginal product of labor (MPL) and the opportunity cost of time as 48 percent of the MPL. That is, we use an opportunity cost of time of $12.92 per hour (= $24.84 * (1 - 0.48)). We adopt this as our estimate of the hourly value of time for changes in time use for unpaid activities. Unlike our State and private sector wage adjustments, we are not adjusting beneficiary costs for fringe benefits and other indirect costs since the individuals' activities, if any, would occur outside the scope of their employment.

\120\ White House Council of Economic Advisers. (March 2019) Economic Report of the President, 2019, p. 423. https://www.govinfo.gov/content/pkg/ERP-2019/pdf/ERP-2019.pdf. See also https://www.nber.org/papers/w18088, as discussed in more detail near Table 46 in this regulatory preamble.

The implementation of section 1902(xx) of the Act through this IFC will require States (and, where applicable, their contractors, in compliance with statutory single State agency requirements and conflict-of-interest limitations) to collect, verify, maintain, and report information to administer the community engagement requirement for “applicable individuals,” including the operation of exceptions and exclusions,

ex parte verification processes, notices, and noncompliance procedures.

CMS and States will use the collected information to:

Determine whether an individual is a specified excluded individual as defined in 1902(xx)(9)(A)(ii) of the Act, has demonstrated compliance with the community engagement requirement in the month as required by section 1902(xx)(1) and (2) of the Act, or is deemed to have demonstrated compliance in the month under a mandatory or optional exception in section 1902(xx)(3) of the Act.

Conduct required verifications at application and redetermination and, at State option, more frequently, as permitted by section 1902(xx)(4) of the Act.

Support required ex parte verification processes using reliable information available to the State (for example, payroll or other administrative data) and minimize requests to individuals, consistent with section 1902(xx)(5) of the Act.

Implement procedural protections when compliance cannot be verified, including issuance of notices, the 30-day response period, continued coverage during the response period for enrolled individuals, and fair hearing rights, consistent with section 1902(xx)(6) of the Act.

Conduct required outreach and periodic notifications to inform enrolled individuals about requirements, exceptions, exclusions, consequences of noncompliance, and how to report changes, consistent with section 1902(xx)(8) of the Act.

Oversee State implementation and, where applicable, monitor progress under any statutory implementation exemption through quarterly progress reports and risk/mitigation updates, consistent with section 1902(xx)(11)(D) of the Act. 1. ICRs Regarding State Requirements To Submit Data for Monitoring Community Engagement (Sec. 435.562)

The following changes will be submitted to OMB for approval under control numbers 0938-1148 (CMS-10398 #35), 0938-1188 (CMS-10434 #66), and 0938-0345 (CMS-R-284).

Sections 1902(a)(6) and (a)(75) of the Act provide CMS with the authority to require States to submit data that allows CMS to monitor State eligibility and enrollment processes. Under these existing statutory authorities, States submit monthly Medicaid and CHIP eligibility and enrollment information to CMS through the Medicaid and CHIP Performance Indicator data via CMS-10398 #35, the Medicaid and CHIP Eligibility Processing data via CMS-10434 #66, and T-MSIS data submissions via CMS-R-284. These established data collections support program transparency and oversight by enabling CMS, States, and the public to monitor eligibility and enrollment operations and by allowing CMS to identify potential compliance and program integrity concerns and to initiate timely engagement with State agencies.

As discussed in section II.O. of this IFC preamble and codified at Sec. 435.562, CMS will require State submissions of monitoring and program operations data related to community engagement implementation and outcomes according to the cadence and not later than the deadline specified by us, including (as applicable) reporting through existing Medicaid data systems identified above and below in Table 5. Under CMS- 10398 #35, CMS-10434 #66, and CMS-R-284, States must submit data for the following data elements for applicants and beneficiaries applying for and receiving medical assistance, including individuals subject to the requirements of section 1902(xx) of the Act or Sec. 435.562, or must make system and reporting changes to enable the collection of these data elements:

Enrollment totals of individuals applying for and receiving medical assistance.

Application and renewal processing timeliness, and backlogs.

Outcomes determinations and redeterminations of eligibility.

Population counts of individuals subject to and their compliance with the requirements of section 1902(xx) of the Act (or Sec. Sec. 435.550 through 435.563).

Any other data specified by CMS to monitor State implementation of Sec. Sec. 435.550 through 435.563.

For reporting community engagement monitoring data, a State is defined as any of the 50 States and the District of Columbia that provides medical assistance that is subject to the requirements at section 1902(xx) of the Act. We estimate that 44 jurisdictions meet this definition (43 States and the District of Columbia) and that they will need to assess their inputs and develop the necessary data outputs for submission to CMS to support compliance with the community engagement reporting requirements. For the purpose of estimating burden, we assume these jurisdictions will need to submit the community engagement data to CMS monthly. However, CMS may specify a different, less frequent cadence, at a later date. a. Performance Indicator Data (Annual Reporting for Monitoring Community Engagement)

The burden associated with the performance indicator (PI) data report consists of the initial, one-time system and process changes by jurisdictions to the PI data reporting to be able to pull the new data collection and report to CMS. The burden also consists of the time and effort for the State to pull and analyze data for accuracy and completeness and to submit data through the designated reporting mechanism. CMS estimates that 44 jurisdictions will need to report six new data metrics and update the data of a previously submitted PI data report on an ongoing monthly basis.

For the one-time system and process updates, CMS estimates 44 jurisdictions will spend 162 hours to make changes for a total of 7,128 hours (44 jurisdictions x 162 hr = 7,128 hr). CMS estimates it will take a Computer and Information Analyst 160 hours at $111.66/hr to review existing eligibility and enrollment data and organize these data appropriately to submit to CMS to meet the PI reporting requirements of Sec. 435.562. In addition, we estimate it will take a General and Operations Manager 2 hours at $128.00/hr to review the data and approve the submission of the data to CMS. In total, we estimate a total one- time cost of $797,350 [44 x (160 hr x $111.66/hr) + (2 hr x $128.00/ hr)]. Assuming a Federal administrative match of 75 percent, the estimated State share is $199,338 ($797,350 x 0.25).

For the ongoing monthly reporting and updates of PI data, CMS estimates 44 jurisdictions will submit 2 reports each with existing metrics and new community engagement metrics on up to a monthly basis or, 1056 responses on an annual basis (44 jurisdictions x 2 reports x 12 months = 1056 responses/year). CMS estimates it will take a Computer and Information Analyst 3 hours (0.50 hours each for 6 metrics) at $111.66/hr to conduct the ongoing monthly reporting and updates for new community engagement measures. In addition, we estimate it will take a General and Operations Manager 1 hour (10 minutes each for six metrics) at $128.00/hr to review the data and approve the submission of the community engagement data to CMS. The corresponding total annual cost is $488,907 [1,056 x (3 hr x $111.66/hr) + (1 hr x $128.00/hr)]. Assuming a Federal administrative match of 75 percent, the estimated State share is $122,227 ($488,907 x 0.25).

For the one-time system and process updates, CMS estimates 44 jurisdictions will spend 162 hours to make changes for a total of 7,128 hours (44 jurisdictions x 162 hr = 7,128 hours). CMS estimates it will take a Computer and Information Analyst 160 hr at $111.66/hr to review existing eligibility and enrollment data and organize these data appropriately to submit to CMS to meet the Eligibility Processing (EP) reporting requirements of Sec. 435.562. In addition, we estimate it will take a General and Operations Manager 2 hours at $128.00/hr to review the data and approve the submission of the data to CMS. In total, we estimate a total one-time cost of $797,350 [44 x (160 hr x $111.66/hr) + (2 hr x $128.00/hr)]. Assuming a Federal administrative match of 75 percent, the estimated State share is $199,338 ($797,350 x 0.25).

For the ongoing monthly reporting and updates of EP data, CMS estimates 44 jurisdictions will submit 2 reports each with existing metrics and new community engagement metrics on up to a monthly basis or, 1056 responses on an annual basis (44 jurisdictions x 2 reports x 12 months = 1056 responses/year). CMS estimates it will take a Computer and Information Analyst 3 hours (0.60 hours each for 5 metrics) at $111.66/hr to conduct the ongoing monthly reporting and updates for new community engagement measures. In addition, we estimate it will take a General and Operations Manager 1 hour (0.20 hours each for five metrics) at $128.00/hr to review the data and approve the submission of the community engagement data to CMS. The corresponding total annual cost is $488,907 [1,056 x (3 hr x $111.66/hr) + (1 hr x $128.00/hr)]. Assuming a Federal administrative match of 75 percent, the estimated State share is $122,227 ($488,907 x 0.25). c. T-MSIS Data

For one-time system and process changes, CMS estimates 44 jurisdictions will spend 250 to 500 hours to implement the T-MSIS reporting changes for a total of 11,000 and 22,000 hours (250-500 hr x 44 respondents). CMS estimates it will take a Medical and Health Services Manager 250 to 500 hours at $132.44/hr. to implement the changes. The corresponding total annual cost is between $1,456,840 and $2,913,680 (11,000-22,000 hr x $132.44/hr). Assuming a Federal administrative match of 75 percent, the State share is between $364,210 and $728,420. To avoid underestimating our burden analysis, we use the high end of our burden estimate to score the PRA-related impact related to the one-time system and process changes required to implement these T-MSIS reporting changes.

Annual operational costs are not expected to increase above current T-MSIS reporting burden once the one-time T-MSIS file changes are implemented due to the automated nature of T-MSIS file submissions. The one-time implementation costs will allow the States to automate and integrate community engagement data collection into their ongoing T- MSIS file submissions. BILLING CODE 4120-01-P [GRAPHIC] [TIFF OMITTED] TR03JN26.022

[GRAPHIC] [TIFF OMITTED] TR03JN26.023

BILLING CODE 4120-01-C 2. ICRs Regarding Good Faith Effort Exemptions and Quarterly Reporting (Sec. 435.560)

The following changes will be submitted to OMB for approval under control number 0938-1148 (CMS-10398 #100).

As stated in section II.K. of this IFC, States must implement the community engagement requirement (such as the demonstration or deemed demonstration of community engagement by certain individuals) beginning January 1, 2027, although States may elect an earlier implementation date.

Section 1902(xx)(11) of the Act provides the Secretary of HHS with the authority to provide States with a temporary good faith effort exemption from timely implementation of the community engagement requirement and outlines the criteria that must be considered when evaluating whether a State has demonstrated a good faith effort towards implementation.

Section 1902(xx)(11)(B) of the Act, codified at Sec. 435.560, outlines the criteria CMS must consider when determining whether a State has demonstrated a good faith effort towards implementing the community engagement requirement. Section 1902(xx)(11)(A)(i) of the Act provides CMS with the ability to specify the form and timing of States' requests for a good faith effort exemption. Good faith effort exemptions will be considered on a case-by-case basis and will be approved only for States that demonstrate they have a work plan, have been diligently making progress on the work plan every month in 2026, and were only limited by circumstances beyond the control of the State.

States that cannot meet the statutory effective date and seek additional time will be required to submit a good faith effort exemption request, and, if granted an exemption, submit quarterly progress reports. Collections include:

Exemption request submission, including milestones and plan to implement the requirement.

Quarterly reports on progress toward milestones.

Quarterly (or as-needed) reporting on newly identified risks/barriers and mitigation plans.

As of May 2026, 43 States and the District of Columbia (44 jurisdictions) cover populations subject to the community engagement requirement at section 1902(xx) of the Act. To date, several of the 44 jurisdictions have been preparing for, or have previously implemented, a similar community engagement requirement, thus reducing the need for a potential good faith exemption request. CMS will work with each State to support compliance by the January 1, 2027, statutory effective date to reduce the need for a good faith exemption and to assist States in addressing any unforeseen challenges. Ultimately, we estimate that approximately 10 States will need to prepare and submit a good faith exemption request.

For the development and submission of the good faith effort exemptions, we estimate that it will take approximately 24 hours at $87.52/hr for a Business Operations Specialist to develop the exemption request, which includes documenting the State's efforts to date, challenges and barriers the State faces, and a work plan to document progress toward fully implementing the community engagement requirement. We also estimate that it will take 4 hours at $128.00/hr for General and Operations Managers to review and provide oversight prior to submission to CMS. In aggregate, we estimate a one-time burden of 280 hours (28 hr x 10 States) at a cost of $26,125 [(240 hr x $87.52/hr) + (40 hr x $128.00/hr)]. Accounting for the Federal administrative match of 50 percent, the requirement will cost States $13,063 ($26,125 x 0.50).

[GRAPHIC] [TIFF OMITTED] TR03JN26.024

Each good faith effort exemption request will be reviewed and adjudicated on its own merits. For the purposes of this burden estimate we estimate that of the approximately 10 States that we expect to apply, we will approve approximately 2 States for a good faith effort exemption. These estimated two States will need to develop and submit quarterly reports to document their implementation progress. States will be eligible to submit quarterly reports for a maximum of 2 years; for burden purposes, we assume both States will submit quarterly reports in the first year, but that only 1 State will require an ongoing exemption and will continue to submit quarterly reports in the second year. In total we estimate that 12 quarterly reports will be submitted [(2 States x 4 reports in year 1) + (1 State x 4 reports in year 2)]. We estimate that each quarterly report will take approximately 12 hours at $87.52/hr for a Business Operations Specialist to prepare. The burden relates to the quarterly reports on: (1) the status of the milestones the State provided on the detailed plan and timeline for achieving full compliance, per Sec. 435.560(b)(3); and (2) information on specific risks or newly identified barriers or challenges to full compliance, including the State's plan to mitigate such risks, barriers, and challenges. We also estimate that it would take General and Operations Managers 0.5 hours at $128.00/hr to review and provide oversight prior to submission to CMS. In aggregate, we estimate a total burden of 150 hours (12.5 hr/ report x 12 quarterly reports) at a cost of $13,371 [(144 hr x $87.52/ hr) + (6 hr x $128.00/hr)]. Accounting for the Federal administrative match of 50 percent, the requirement will cost States $6,686 ($13,371 x 0.50). [GRAPHIC] [TIFF OMITTED] TR03JN26.025

We have summarized the total burden associated with good faith effort exemptions under Sec. 435.560 in Table 8.

[GRAPHIC] [TIFF OMITTED] TR03JN26.026