July 8, 2026
One year after the federal government enacted the sweeping reconciliation legislation colloquially dubbed "The One Big Beautiful Bill," the healthcare landscape remains in a state of profound transition. While the bill’s passage dominated headlines in 2025, the true impact of the legislation is currently being forged in the opaque, technical, and high-stakes environment of the federal rulemaking process.
The Centers for Medicare & Medicaid Services (CMS) is currently drafting the regulatory framework that will dictate how the 2025 law’s broad mandates are implemented on the ground. For millions of Americans—specifically those in the Medicaid expansion population—this process represents a critical juncture that could determine the continuity of their care. At the heart of this regulatory battle are two contentious issues: the imposition of strict work requirements for Medicaid recipients and the imposition of caps on State Directed Payments (SDPs), both of which threaten the stability of Substance Use Disorder (SUD) treatment services.
The Chronology of Legislative and Regulatory Change
The trajectory of this reform began in the summer of 2025, when Congress passed the reconciliation package aimed at restructuring Medicaid funding and eligibility. The legislative intent was to consolidate various spending streams and place tighter fiscal controls on state-level healthcare programs.
However, legislative language often lacks the granular detail required for operational execution. Following the bill’s signing, CMS initiated a lengthy rulemaking period—a formal administrative process that allows the agency to interpret the law and provide guidance to state agencies and managed care organizations (MCOs).
We are currently in the comment and review phase of this process. Advocacy groups, including the Legal Action Center and the Coalition for Whole Health, are working under a ticking clock to provide feedback to CMS. Their goal is to illustrate the potential for widespread disruption in recovery support services should these rules be finalized in their current, restrictive form.
Understanding the New Work Requirements
One of the most debated aspects of the proposed rules involves the mandate that certain Medicaid beneficiaries participate in work-related activities to maintain coverage. These requirements apply specifically to the "expansion population"—those individuals who became eligible for Medicaid under the Affordable Care Act (ACA) but would not have qualified under traditional, non-expansion eligibility criteria.
The "Medically Frail" Exemption
The proposed rule includes a "Medically Frail" exemption intended to protect those whose behavioral or physical health conditions preclude them from meeting work requirements. While this sounds protective in theory, the implementation language creates a high barrier to entry. To qualify, an individual must fall into one of five categories:
- Being blind or disabled.
- Suffering from a substance use disorder.
- Having a disabling mental health condition.
- Having a physical, intellectual, or developmental disability.
- Having a serious or complex medical condition.
Crucially, the new rule shifts the burden of proof. It is no longer sufficient to simply hold a diagnosis within one of these categories; the individual must also proactively demonstrate an "impaired capacity" to meet work requirements. This adds a layer of administrative complexity that could result in vulnerable individuals losing coverage simply due to an inability to navigate the bureaucratic verification process.
The SUD Treatment Program Exception
There is a specific carve-out for individuals participating in qualifying SUD treatment programs. However, the definition of "qualifying" is narrow, restricted to programs run by nonprofits or public community mental health centers that meet specific SNAP-related federal requirements.
Perhaps most controversially, the rule excludes individuals who have been in recovery for five years or more. The rationale provided by the agency—that these individuals are at no higher risk for substance use than the general population—has been met with significant pushback from medical professionals. Advocates argue that this assumption ignores the chronic, relapsing nature of addiction and fails to account for the unique stressors that remain in the lives of those in long-term recovery.
The Financial Crisis: State Directed Payments (SDPs)
While the work requirements affect the eligibility of patients, the changes to State Directed Payments (SDPs) threaten the financial viability of the providers themselves.
How SDPs Function
Under the current system, states are generally prohibited from dictating exactly how Managed Care Organizations (MCOs) compensate providers. However, states have historically used SDPs to mandate minimum payment rates or implement value-based payment structures. This flexibility has been a lifeline for SUD providers, allowing them to attract and retain staff and maintain facilities in areas where reimbursement rates might otherwise be unsustainable.
The 2025 Reconciliation Impact
The 2025 law introduced stringent caps on these payments. Previously, SDPs were often benchmarked against average commercial rates. The new law mandates that these payments be capped at or near Medicare rates—specifically 100% of the Medicare rate for expansion states and 110% for non-expansion states.
While the statute specifically mentioned hospital, nursing, and academic medical center services, the proposed rule extends these caps to all Medicaid services. For the recovery support sector, this is catastrophic. Many recovery services lack corresponding codes within the Medicare system, meaning they operate on thin margins. If the new payment limits are applied, providers face the distinct possibility of massive, forced rate cuts. This could lead to a wave of clinic closures, reduced access to beds, and a total collapse of support systems for those battling addiction.
Implications for the Recovery Community
The convergence of stricter eligibility requirements for patients and lower reimbursement rates for providers creates a "perfect storm" for the healthcare sector.
- Reduced Access: As providers face potential insolvency due to SDP caps, the number of available treatment slots will likely plummet.
- Administrative Churn: The complex verification requirements for the "Medically Frail" exemption will lead to "churn"—a process where individuals lose coverage due to administrative errors and must reapply, leading to gaps in care that are often fatal for those with severe SUD.
- Stigmatization: By arbitrarily declaring those in recovery for five years to be "low risk," the rule fails to account for the ongoing biological and psychological needs of the patient population, effectively penalizing success in treatment.
Official Responses and the Path Forward
The Legal Action Center, alongside members of the Coalition for Whole Health, is preparing a formal response to CMS. Their comments will emphasize that the current proposal deviates from the scientific reality of addiction treatment and fails to consider the economic fragility of the SUD support network.
"We are committed to ensuring that the voices of those in recovery are heard before these rules are etched in stone," a coalition spokesperson noted. "The goal is not to obstruct, but to ensure that the implementation of the 2025 law does not inadvertently dismantle the very care systems that keep our citizens alive."
The Call to Action
The rulemaking process is not just a technical exercise; it is an advocacy battleground. As CMS reviews the incoming public comments, the focus remains on pushing for a regulatory framework that acknowledges:
- The Clinical Reality: That recovery is a lifelong process that does not conform to five-year arbitrary deadlines.
- The Economic Reality: That without adequate reimbursement rates—which are currently protected by SDPs—community-based recovery organizations cannot survive.
- The Human Reality: That Medicaid remains the single most important safety net for millions of Americans, and any restriction on its utility must be met with the highest level of scrutiny.
As the summer of 2026 progresses, the outcome of this rulemaking will serve as a bellwether for the future of the American safety net. Will the federal government prioritize fiscal austerity at the expense of patient access, or will it find a way to honor the spirit of the law while protecting the most vulnerable among us? The answer, as of now, remains in the hands of the regulators and the advocates working to influence them.
