The H.R.1 Employer Readiness Checklist
Three Medicaid changes take effect on January 1, 2027, mostly affecting adults covered through Medicaid expansion. This checklist lists what behavioral health employers should do before then, and how to pay for it.
What changes on January 1, 2027
All three apply to adults aged 19 to 64 covered through Medicaid expansion. The retroactive coverage change also applies, in a smaller form, to other Medicaid enrollees. Some states started earlier (see item 2).
Work requirements
Renewals every six months
Shorter retroactive coverage
The four dates
- January 1, 2027: the three changes above take effect. This is the latest date states can start work requirements. Nebraska (May 1, 2026) and Montana (July 1, 2026) have already started. A state granted a federal good-faith effort exemption can delay until December 31, 2028 at the latest.
- October 1, 2027: limits on state provider taxes start tightening. Many states use provider taxes to fund their share of Medicaid. In expansion states the cap drops from 6 percent to 5.5 percent, then by 0.5 points a year until it reaches 3.5 percent in October 2031. Nursing facilities and intermediate care facilities are excluded. One published summary dates this a year later (see item 10).
- January 1, 2028: existing state directed payments start shrinking. Grandfathered arrangements drop by 10 percentage points a year until they reach the new cap.
- October 1, 2028: new copays for some adults. Expansion adults with income between 100 and 138 percent of the federal poverty level can be charged up to $35 per service. Mental health, substance use disorder, and primary care services are exempt, as are services at FQHCs, CCBHCs, and rural health clinics.
Why employers should plan now
If many of your clients are on Medicaid, expect some to lose coverage at renewal, fewer past services to be billable, and less state funding over time. All of that lowers revenue. When revenue drops, training and professional development budgets are usually among the first cuts. That tends to backfire, because licensed clinicians are what you bill for. We cover this in H.R.1 and Your Behavioral Health Workforce. The 24 items below are grouped into six sections, each with an owner and a deadline.
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The two-page handout condenses all 24 items, the four dates, and the exemption reference. The 11-page worksheet adds owner, target date, status and evidence for every item, plus a state variation grid, a funding-source map, and a board-brief outline. Enter your work email and both downloads unlock right here.
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Know your exposure
1. Quantify your Medicaid expansion-adult mix
Most of these changes apply to one group: adults aged 19 to 64 covered through Medicaid expansion who are not on Medicare. Start by finding out what share of your clients are in that group.
- Pull a client census segmented by payer, then by eligibility category within Medicaid.
- Separate expansion adults from traditional Medicaid (aged, blind, disabled), because the retroactive coverage change treats them differently.
- Flag clients with a documented substance use disorder or serious mental illness. Some may qualify for an exemption, but only if the condition significantly limits their ability to meet the requirement (see item 5).
2. Confirm whether your state implements early
States must implement the community engagement requirement no later than January 1, 2027, but they may start sooner, and some already have. Nebraska began May 1, 2026 and Montana July 1, 2026. It can also run later: the Secretary of Health and Human Services can grant a state a good-faith effort exemption, evaluated case by case, delaying implementation to no later than December 31, 2028. Check your own state's date rather than assuming January 1, 2027.
- Find your state Medicaid agency's H.R.1 implementation plan and note the go-live date it commits to.
- If you operate across state lines, build a one-page grid: state, go-live date, verification cadence, exemption process.
- Set a calendar reminder 90 days ahead of each go-live date.
3. Read the federal rule, not the summaries
CMS published the interim final rule with comment period implementing the community engagement requirement (CMS-2454-IFC) in the Federal Register on June 3, 2026. It is the official source for exemptions, verification, and what happens when someone does not comply.
- Extract the exemption list and the verification triggers into your own internal policy language.
- Note where the rule lets states decide, because your state's choices will apply there.
4. Model the one-month retroactive window
Effective January 1, 2027, retroactive Medicaid coverage narrows from three months to one month before the month of application for expansion adults, and to two months for traditional Medicaid enrollees.
- Pull the last 12 months of claims paid under retroactive eligibility and identify how many fell outside a one-month window.
- Translate that into a dollar figure and list it as its own line in the FY2027 budget.
- Re-baseline bad debt and charity care against the same analysis.
Protect client coverage continuity
5. Build an exemption-flagging workflow
Several exemptions from the work requirement apply to behavioral health clients. These groups are exempt outright: people participating in a drug addiction or alcohol treatment and rehabilitation program, parents and caretakers of children aged 13 or under or of a disabled individual, people already meeting TANF or SNAP work requirements, pregnant and postpartum individuals, American Indians and Alaska Natives, veterans with a total disability rating, inmates of public institutions, and former foster care youth up to age 26.
Substance use disorder and mental illness are handled differently. They count only under the “medically frail” exemption, which has two parts: the state must verify both that the condition exists and that it significantly impairs the person's ability to comply. A diagnosis on its own is not the exemption. CMS points states toward conditions such as schizophrenia, major depressive disorder and panic disorder where they are disabling. People in stable recovery for five or more years are not automatically exempt on that basis.
Separately, states may elect short-term hardship exceptions: for people in a medical institution or receiving intensive outpatient services, for those traveling outside their community for an extended period to treat a serious or complex condition, for residents of areas where unemployment runs at least 50 percent above the national average, and for areas under a declared emergency or disaster. Each state decides whether to offer these, so check what yours adopted before writing them into policy.
- Match each exemption category to a field in your EHR, and add fields for any it does not track.
- Decide who produces the documentation. For several categories, the proof is a clinical record your organization holds and the client does not.
- Check SNAP and TANF first. A client already meeting those work requirements is exempt here without any new documentation from you.
- Confirm whether your state adopted the intensive outpatient hardship exception. If it did, clients in your IOP program may qualify.
- Your own clinicians can provide the documentation. CMS lists physicians, nurse practitioners, physician assistants, psychologists, counselors and therapists, and clinical social workers as acceptable documentation sources, so the letter can come from whoever already treats the client.
- States may also establish exemption status from claims and encounter data for the preceding 12 months. Accurate, on-time encounter coding now affects whether clients keep coverage, not only whether you get paid.
- Have compliance review any sharing of SUD records first. 42 CFR Part 2 still applies to these records, including when they are shared to document an exemption.
- Write the documentation letter template now.
- Train intake and front-desk staff to ask about exemptions at first contact, not at renewal.
6. Help clients respond within the 30-day notice period
On noncompliance, the state must send a notice and give the individual 30 calendar days to demonstrate compliance. If the client misses or ignores the notice, they can lose coverage before anyone at your organization finds out.
- Ask your state whether providers can receive notice, or whether the client is the only recipient.
- Add a standing question to every clinical contact in that period: have you received any mail from Medicaid?
- Set up a process so a client who received a notice reaches someone who can help within 48 hours.
7. Prepare for six-month renewals
Beginning with renewals initiated on or after January 1, 2027, states must redetermine eligibility for the Medicaid expansion adult population every six months instead of annually. That doubles the number of times each year a client can lose coverage over paperwork.
- Build a renewal-date field into the client record and run a monthly report of who is due in the next 60 days.
- Contact clients before each renewal is due rather than after coverage ends.
- Track how long re-enrollment takes, and set a target.
8. Decide who staffs eligibility support, and how it is paid for
Items 5 through 7 take staff time. If no one is assigned and funded before January, the work will fall to clinicians as unbilled administrative time.
- Assign the role, even if it starts as part of an existing position.
- Check whether the cost is allowable under your CCBHC PPS rate, a current grant, or your state's RHTP program.
- Peer support specialists and community health workers are a common fit, and several states are funding this role through RHTP.
Protect the revenue cycle
9. Get applications submitted faster
With retroactive coverage cut to one month for expansion adults, care delivered too long before a client applies can no longer be billed to Medicaid. The longer the gap between first visit and application, the more you lose.
- Measure the median number of days from first service to submitted application.
- Set a target inside the retroactive window and report it monthly.
- Help clients apply at first contact instead of waiting until intake is complete.
10. Track your state's provider tax exposure
In expansion states, the allowable provider tax safe harbor begins stepping down 0.5 percentage points per year beginning in federal fiscal year 2028, which starts October 1, 2027. The first step takes the maximum taxable amount to 5.5 percent, then 5.0, 4.5 and 4.0, reaching 3.5 percent in federal fiscal year 2032. Nursing facility and intermediate care facility taxes are excluded from the reduction where they were effective by October 1, 2026 and do not exceed six percent. Non-expansion states are not required to reduce, but cannot raise existing rates.
A note on timing. Published summaries disagree by a year on when the first step lands. KFF, HHS ASPE and the National Council all read it as federal fiscal year 2028, beginning October 1, 2027, which is what this page follows. The American Medical Association's summary puts the first reduction a year later. Before you build a three-year forecast on either reading, confirm the schedule with your state hospital or provider association, since they will be tracking your state's specific rate.
- Ask your state association how much of your state's non-federal share currently rests on provider taxes.
- Add the step-down to your three-year financial model now.
11. Understand the state directed payment limits
New state directed payments are capped at 100 percent of the total published Medicare rate in expansion states and 110 percent in non-expansion states. Grandfathered arrangements step down by 10 percentage points annually beginning January 1, 2028 until they reach the allowable limit.
- Determine whether any of your current rates depend on a state directed payment arrangement.
- If so, ask whether it is grandfathered and what the step-down schedule looks like for your rate specifically.
12. Know what stays exempt from the new cost sharing
Beginning October 1, 2028, states must impose cost sharing of up to $35 per service on expansion adults with income between 100 and 138 percent of the federal poverty level. Mental health and substance use disorder services are exempt. So are primary care and services furnished by federally qualified health centers, certified community behavioral health clinics, and rural health clinics. Premiums and enrollment fees remain prohibited, and existing out-of-pocket limits still apply.
- Confirm your service lines and site types fall inside the exemption before you build any collection workflow.
- Do not let a vendor configure cost-sharing logic that charges for exempt behavioral health services.
Protect billable capacity
13. Inventory your associate-level pipeline
Every pre-licensure clinician on your staff is capped below independent billing. Getting them licensed is one of the few revenue levers you control, unlike most of section 03.
- Count associate-level clinicians by discipline and by exam: ASWB, NCE/NCMHCE, EPPP, MFT, BCBA, addictions.
- Record where each one is: supervision hours complete, exam attempted, exam passed.
- Identify who has been stalled at the exam step for more than six months. Helping that group pass is the fastest way to add billable capacity.
14. Set and measure a time-to-licensure target
Time to licensure is the staffing measure most directly tied to billable hours. Someone needs to own it.
- Baseline the median months from hire to independent licensure for your last two cohorts.
- Set a target, name an owner, and review it on the same cadence as your financials.
- Start with the two most common delays: access to supervision and exam preparation.
15. Close the CE compliance gap before it becomes an audit finding
Continuing education compliance protects both your ability to bill and your standing with accreditors. It is also often cut when budgets tighten, which can lead to audit findings.
- Confirm you can produce centralized completion records on demand, per clinician, per licensing board.
- Check state-required CE topics, which change often.
- If individual clinicians keep their own records, move them into one central system before your next survey.
16. Defend the professional development line in the FY2027 budget
When revenue drops, finance looks for costs it can cut quickly. Clinical salaries are fixed, so continuing education, exam prep, supervision stipends, and retention benefits are usually treated as optional and cut first.
- Bring the pipeline report from item 13 to the budget meeting.
- Make the case in terms of billable capacity and turnover cost, not training hours.
- Then show which parts of it are fundable from something other than the operating budget, which is section 05.
Fund it from something other than operating margin
17. Map training costs into your CCBHC PPS rate
CCBHC prospective payment is cost-based. Workforce and training costs that are properly captured in the cost report are reflected in the rate.
- Check whether exam prep, continuing education, and supervision time are currently captured in your cost report at all.
- If they are not, you are paying for them out of operating margin when the rate could cover them.
- Confirm the treatment with whoever prepares your cost report before you change any coding.
18. Get on your state's RHTP subrecipient list
H.R.1 created the $50 billion Rural Health Transformation Program, distributing $10 billion a year from FY2026 through FY2030: half split equally among approved states, half allocated by CMS against the factors in its notice of funding opportunity. States received awards and are now standing up programs, selecting hub leads, and issuing requests for applications. Workforce is an explicitly supported category, including recruiting and retaining clinical talent, career pathways, residencies and fellowships, ongoing clinician training, and certification for community health workers and peer support specialists.
This is rural funding. Several workforce uses require a five-year commitment to serve in a rural area. If you do not serve rural communities, this is not your funding source and items 17 and 19 are where your time goes.
- Find who administers RHTP in your state, because in some states it sits in the governor's office rather than the Medicaid agency.
- Get on the notification list for requests for applications. Several rounds have already closed in states that moved early.
- Note that CMS caps the direct provider-payments funding category at 15 percent annually, so proposals framed as workforce development compete better than proposals framed as revenue replacement.
19. Audit current grants for allowable training lines
Workforce and capacity-building awards frequently allow training, licensure preparation, and continuing education as eligible costs. Many organizations never use this funding.
- Review each active award for an allowable training or workforce development line.
- If the funding is there and unspent, use it before the grant period ends.
- Include a training line in every future application.
20. Package it as one benefit with centralized records
Funding sources ask for documentation. If training is paid through individual reimbursements, there is no central record to show a funder.
- Consolidate exam prep and continuing education into a single trackable program.
- Keep completion records in one place so compliance, accreditation, and grant reports all use the same data.
- Report utilization alongside your pipeline metrics so the benefit's effect is visible at budget time.
Governance
21. Name one owner for H.R.1 readiness
This checklist crosses finance, clinical operations, compliance, HR, and grants. Without one accountable person, it is unlikely to get done.
- Name a single accountable owner, at director level or above.
- Give them a standing slot on the leadership meeting agenda.
22. Put the four dates on the leadership calendar
Most of the planning on this page ties back to four dates, listed in The four dates near the top of this page.
- Add each date to the executive calendar with a 90-day pre-brief.
- Attach the owning function to each one.
23. Brief the board once, in operational terms
Your board will want to know what H.R.1 means for your organization. Use your own numbers, not national ones.
- Lead with your expansion-adult share from item 1 and your retroactive exposure from item 4.
- Present the workforce pipeline from item 13 as the plan, and the funding sources from section 05 as how to pay for it.
- Be explicit about what remains uncertain, particularly anything that depends on unreleased state guidance.
24. Pick one source to track updates
New guidance keeps coming from CMS and several advocacy organizations. Rather than tracking all of it yourself, rely on one source that already does.
- Use the National Council for Mental Wellbeing's free H.R.1 Hub as the standing reference, and check your state Medicaid agency directly for anything state-specific.
- Assign one person to review it monthly and flag changes against this checklist.
Free tools that do some of this work for you
The National Council for Mental Wellbeing's H.R.1 Resource Hub is free and includes ready-made tools for several items on this checklist. The National Council is one of Triad's preferred partners. For anything state-specific, go to your state Medicaid agency directly, since rules vary by state.
For items 5 to 8, coverage continuity
The Identifying Individuals Impacted by H.R.1 decision tree and the Mapping Clients to Coverage Continuity Support factsheet do most of item 5's segmentation work. The Identifying and Preventing Coverage Loss deck is a ready-made internal training.
For staff who talk to clients
The Client FAQ template is an editable Word document you can brand and hand out, and the direct service provider talking points cover what front-line staff should say. Both support item 6.
For item 3, reading the rule
Instead of reading the Federal Register first, start with the National Council's interim final rule summary or the short FAQ version, then go to the primary text for anything you intend to write into policy. Their community service guidance covers one of the ways the 80 hours can be met.
For items 10, 11 and 18, the money
The provider tax hold harmless factsheet and CMS's state directed payments letter are the most useful for your CFO. For RHTP there is a factsheet and a template letter to your state that you can fill in for item 18.
What this checklist is not. It is general operational guidance about federal legislation, not legal, tax, or reimbursement advice, and it is not a substitute for your state's guidance. H.R.1's Medicaid provisions phase in over several years and states have meaningful discretion in how they implement, so the specifics that apply to your organization will differ from the federal baseline described here, and a state holding a good-faith effort exemption may be operating on a materially later timeline than the dates on this page. Confirm everything with your own policy, finance, and compliance advisors, and refer to official CMS and state guidance for authoritative detail. Reviewed September 9, 2026.
Sources
Each entry notes what it is cited for, so you can check any claim on this page against the document it came from.
- Primary rule. Centers for Medicare & Medicaid Services, Medicaid Program; Community Engagement Requirement for Certain Individuals, interim final rule with comment period (CMS-2454-IFC), Federal Register, June 3, 2026, and the accompanying CMS fact sheet. Cited for the 80-hour requirement and the ways it can be satisfied, the age range, the full list of excluded individuals, the state-elected short-term hardship exceptions, verification at application and renewal, the 30-day cure period, and the January 1, 2027 implementation deadline.
- State timing. Center on Budget and Policy Priorities, Timing of State Implementation of H.R. 1's Medicaid Policies. Cited for the early implementers (Nebraska, May 1, 2026; Montana, July 1, 2026) and for six-month redeterminations applying to renewals initiated on or after January 1, 2027.
- Retroactive coverage. Justice in Aging, H.R. 1 Reduces Medicaid Retroactive Eligibility Starting in 2027. Cited for the reduction from three months to one month for expansion adults and two months for traditional Medicaid, effective January 1, 2027.
- Cost sharing. KFF, Understanding Medicaid Cost Sharing and Policy Changes from the 2025 Reconciliation Law. Cited for the $35-per-service cap, the 100 to 138 percent FPL band, the October 1, 2028 start, the exemptions for mental health, substance use, primary care and FQHC, CCBHC and RHC services, and the 5 percent aggregate cap.
- Provider taxes and state directed payments. HHS Office of the Assistant Secretary for Planning and Evaluation, An Overview of State-Directed Payments and Medicaid Provider Taxes, and KFF, 5 Key Facts About Medicaid and Provider Taxes, cited for the 0.5-point annual step-down to a 3.5 percent floor beginning in federal fiscal year 2028 and the 100 and 110 percent of Medicare caps. The American Medical Association's summary of the Medicaid financing changes is cited for the 10-percentage-point annual reduction for grandfathered state directed payments from January 1, 2028 and for the conditions on the nursing facility and ICF exclusion; note that it dates the provider tax phase-down a year later than the other sources.
- Rural Health Transformation Program. American Medical Association program summary and Bipartisan Policy Center, Addressing Workforce Challenges through the Rural Health Transformation Program. Cited for the $50 billion total and $10 billion a year across FY2026 to FY2030, the half-equal and half-discretionary allocation, the allowable workforce uses and five-year rural service commitments, and the 15 percent cap on direct provider payments.
- Rule interpretation and behavioral health specifics. National Council for Mental Wellbeing, Interim Final Rule Summary: CMS Community Engagement Requirements. Cited for the good-faith effort exemption and its December 31, 2028 outer limit, the two-part medically frail test, the five-year stable recovery carve-out, the clinician types CMS accepts as documentation sources, the use of 12 months of claims and encounter data, and the application of 42 CFR Part 2 to this data sharing.
- Ongoing tracking. National Council for Mental Wellbeing, H.R.1 Resource Hub, including its implementation timeline, which independently confirms the provider tax phase-down beginning October 1, 2027 at 5.5 percent.
Want the fill-in version?
The worksheet turns these 24 items into a working document: owner, due date, status, and evidence for each, plus a state-variation grid and a funding-source map you can take into a budget meeting.
Get the worksheet →Or talk to Triad about protecting billable capacity through the transition: getting clinicians licensed faster, keeping CE compliant, and structuring it so your CCBHC, grant, and RHTP dollars can pay for it.