July 8, 2026
One year ago, the landscape of American healthcare underwent a seismic shift with the passage of the federal reconciliation legislation colloquially dubbed “The One Big Beautiful Bill.” While the initial legislative fanfare signaled a transformation of Medicaid, the true impact of the law is currently unfolding within the complex, bureaucratic corridors of the Centers for Medicare & Medicaid Services (CMS). As the agency moves through the critical rulemaking process, advocates, healthcare providers, and policymakers are bracing for potential disruptions that could fundamentally alter the delivery of Substance Use Disorder (SUD) services and the stability of the Medicaid expansion population.
The Rulemaking Crucible: Bridging Policy and Practice
The passage of legislation is rarely the final chapter in the story of American healthcare; rather, it is the prologue to the rulemaking process. It is during this phase that federal agencies like CMS interpret legislative intent and translate broad mandates into actionable regulatory code.
The current rulemaking cycle is arguably one of the most complex in recent history. The proposed rules touch upon sensitive areas—specifically the introduction of work requirements for certain Medicaid beneficiaries and the implementation of restrictive caps on State Directed Payments (SDPs). For the addiction and recovery community, these developments represent more than mere policy tweaks; they represent a potential barrier to life-saving care.
In response, a coalition led by the Legal Action Center and the Coalition for Whole Health has mobilized to influence these regulations. Their objective is to provide CMS with empirical data and clinical insights, illustrating the unintended consequences these shifts could impose on individuals striving for long-term recovery.
Chronology of Reform: From Legislative Intent to Regulatory Realities
- July 2025: Congress passes the reconciliation bill, “The One Big Beautiful Bill,” setting the stage for significant changes to Medicaid eligibility and payment structures.
- Late 2025 – Early 2026: CMS begins the multi-stage process of drafting proposed rules to implement the legislative mandates.
- Spring 2026: Proposed rules are published, revealing a broader scope than many stakeholders initially anticipated, particularly regarding payment caps.
- Present (July 2026): The public comment period is active. Stakeholder groups are coordinating efforts to voice concerns regarding the "Medically Frail" exemption and the financial sustainability of recovery services.
- Future Outlook: Once the comment period closes, CMS will review the feedback before finalizing the rules, which are expected to dictate the operational reality for Medicaid providers for the foreseeable future.
Deconstructing Work Requirements: The “Medically Frail” Dilemma
Central to the current debate is the imposition of work requirements on the “expansion population”—those individuals who gained Medicaid coverage solely due to the Affordable Care Act (ACA) expansion.
The proposed rules introduce a "Medically Frail" exemption, theoretically shielding those whose physical or mental health conditions inhibit their ability to maintain steady employment. To qualify, an individual must fall into one of five categories: being blind or disabled, suffering from a substance use disorder, living with a disabling mental disorder, managing a physical or intellectual disability, or facing a serious, complex medical condition.
However, advocates argue that the burden of proof is shifting in ways that could exclude the most vulnerable. It is no longer sufficient to be diagnosed with a condition; beneficiaries must now affirmatively demonstrate an “impaired capacity” to meet work requirements. This adds a layer of administrative friction that could lead to the unintended loss of coverage for those who lack the resources to navigate complex bureaucratic appeals.
Furthermore, the rule introduces an exemption for individuals in qualifying SUD treatment programs. While this seems like a victory, the criteria are narrow. The exemption specifically applies to programs run by nonprofits or public community mental health centers that meet 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 rule—that individuals in long-term recovery are at no greater risk of relapse than the general population—is being met with significant pushback from the medical community, which maintains that recovery is a lifelong, dynamic process rather than a binary state of "cured" or "active."
The Financial Threat: State Directed Payments and Rate Cuts
Beyond eligibility, the legislation and subsequent rules threaten the financial viability of recovery support services through the reform of State Directed Payments (SDPs).
Traditionally, states have used SDPs to incentivize Managed Care Organizations (MCOs) to increase provider rates or ensure broader participation in the Medicaid network. According to the KFF Foundation, these payments have been vital in shoring up access to care in areas where provider participation is historically low.
The 2025 reconciliation law sought to limit the potential for abuse by capping SDPs at 100% of Medicare rates for expansion states and 110% for non-expansion states. While the law initially targeted hospital and nursing facility services, the current proposed rule from CMS extends these caps to all Medicaid services.
This is a critical point of concern for the recovery sector. Because many recovery support services lack specific billing codes in the Medicare system, they are often reimbursed at lower, negotiated rates. By applying a Medicare-based ceiling to these services, the proposed rule could trigger a wave of deep reimbursement cuts. Providers who are already operating on razor-thin margins may find it impossible to sustain their operations, leading to a potential "desert" of addiction services in states that rely heavily on the ACA expansion.
Official Responses and Stakeholder Advocacy
The Legal Action Center, alongside its partners in the Coalition for Whole Health, has taken an aggressive stance in its advocacy efforts. Their position is that the proposed rules fail to account for the unique socio-economic barriers faced by those with substance use disorders.
“We are working to ensure that the voice of the recovery community is not drowned out by fiscal austerity measures,” said a spokesperson for the coalition. “The current proposal treats recovery as a static event rather than a clinical reality. If these rules are finalized without modification, we risk dismantling the very infrastructure that has allowed millions of Americans to regain their health and stability.”
While CMS maintains that the rules are designed to ensure fiscal responsibility and harmonize Medicaid with broader federal standards, critics argue that these goals are being prioritized at the expense of the “Triple Aim” of healthcare: improving the patient experience, improving the health of populations, and reducing the per capita cost of healthcare.
Implications: A System at the Crossroads
The implications of these rules, should they be implemented in their current form, are far-reaching.
- Reduced Access to Care: If providers are forced to shutter or scale back due to payment caps, the number of available treatment slots will inevitably decline, exacerbating the ongoing opioid and mental health crisis.
- Administrative Barriers: The requirement to prove “impaired capacity” will likely lead to a drop in enrollment among the expansion population, many of whom may struggle with the paperwork required to maintain their "Medically Frail" status.
- Long-Term Costs: While the government may save money in the short term by limiting reimbursement and increasing eligibility hurdles, the long-term costs—measured in emergency room visits, recidivism, and lost productivity—could be astronomical.
As the comment period continues, the healthcare community remains in a state of vigilant observation. The decisions made by CMS in the coming months will serve as a litmus test for the administration’s commitment to the ACA’s promise of comprehensive, accessible, and high-quality care for all.
For the millions of Americans in recovery, the stakes could not be higher. The path forward requires a nuanced approach—one that respects fiscal discipline while acknowledging the fundamental truth that healthcare is a human right, particularly for those battling the complex, chronic disease of addiction. The coalition’s upcoming submission of formal comments to CMS will be a pivotal moment in this ongoing battle for the soul of the Medicaid program.
For more information on the ongoing rulemaking process and how to contribute comments to the CMS, readers are encouraged to visit the Legal Action Center’s resource portal at www.lac.org.
