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MAY 2026 Medicaid / Medicare Newsletter

Mental Health • Substance Use • Social Services


Summary

May 2026 arrives amid a federal policy environment that is both contracting and fragmenting, with the most consequential development for behavioral health providers being the deliberate abandonment of a rule that, for the first time in nearly two decades, had positioned regulators to enforce meaningful mental health parity protections with teeth.


The Trump administration's non-enforcement stance on the 2024 Mental Health Parity and Addiction Equity Act (MHPAEA) Final Rule has left that landmark update in legal and operational limbo, with the 2013 regulatory framework, now over a decade old, serving as the de facto compliance standard (Departments of Labor, HHS, and Treasury, 2025).

At the same time, the machinery of Medicaid work requirements is beginning to move. States are not waiting for the federal January 2027 deadline. In fact, several have already begun implementation, and some are going beyond federal law by imposing stricter look-back periods and state-level mandates to limit enrollment. The operational and administrative implications for Medicaid-dependent providers are significant, and the full weight of these requirements is not yet visible because detailed federal guidance is not expected until June 2026 (U.S. News/Reuters, 2026).


Beneath both of these stories lies the structural reality that has defined the past year: the One Big Beautiful Bill Act, signed into law on July 4, 2025, has permanently altered the federal-state Medicaid financing relationship. With enhanced FMAP support now sunsetting and states' provider tax financing tools constrained, the fiscal architecture that has sustained many behavioral health systems is thinning. The consequences are now evident in rate freezes, authorization pressures, and workforce instability (KFF, 2026a; Pew Charitable Trusts, 2026).

The Parity Non-Enforcement Decision: What Providers Need to Know

The 2024 MHPAEA Final Rule, issued by the U.S. Departments of Labor, Health and Human Services, and Treasury under the Biden administration on September 9, 2024, marked the most significant update to parity enforcement since 2013.


It strengthened requirements for nonquantitative treatment limitations (NQTLs), the mechanisms plans most commonly use to restrict behavioral health access, and, crucially, required plans to use outcome data to demonstrate that restrictions on mental health and substance use disorder services were not more burdensome than those on comparable medical and surgical services (DOL/HHS/Treasury, 2024).


That rule has been suspended: in January 2025, the ERISA Industry Committee (ERIC) filed suit in U.S. District Court for the District of Columbia, arguing that the rule exceeded regulatory authority and imposed unworkable compliance burdens. Rather than defend the rule in litigation, the Trump administration chose a different path: in May 2025, the three federal departments issued a joint non-enforcement statement declaring that they would not enforce the 2024 Final Rule and were considering whether to rescind or modify it entirely. The 2013 MHPAEA regulations, including the requirement that plans maintain comparative analyses of their NQTLs, remain in effect (APA Services, 2025; Ogletree Deakins, 2025).


For behavioral health providers, the operational implications of this are layered: the strongest enforcement tools, including requirements to demonstrate parity using actual outcome data and a new 'meaningful benefits' standard, are now off the table at the federal level. Plans are not required to meet the more rigorous 2024 standards. The obligation to maintain a written NQTL comparative analysis still applies, but the documentation requirements the 2024 rule added to that analysis, including ERISA fiduciary certification, are not being enforced (Foley & Lardner, 2025).


The practical effect on prior authorization denials is immediate: The 2024 rule created legal vulnerability for plans whose prior authorization requirements for behavioral health exceeded those for comparable medical services. That protection is now weakened at the federal level, though it's not entirely gone.

Providers who have been documenting parity violations should continue doing so and understand that those records can still support complaints to state regulators or the Department of Labor under the 2013 framework (Hello Alleva, 2026).

The State-Level Picture Is Now the Front Line

The federal pullback has created a patchwork of responses: In January 2026, the Commonwealth Fund reported that several states are moving forward with parity enforcement on their own and, in some cases, have anchored their state law to the stronger 2024 federal rule, meaning those protections remain in effect regardless of what happens federally (Commonwealth Fund, 2026).


  • Washington State enacted legislation requiring insurers to comply with the 2024 federal rule as published.

  • Oregon published its fourth annual parity report, identifying continuing disparities in claims denials and provider reimbursement.

  • Georgia took enforcement action against insurers based on state-level outcome data requirements.


For providers operating in multiple states or serving populations covered by fully insured plans, the critical question is what their state's insurance department is doing.


  • The federal non-enforcement statement does not bind state regulators.

  • State insurance departments retain full authority to enforce both the MHPAEA statute and their own state parity laws.

  • HHS has stated it will not penalize states for halting enforcement in line with federal guidance, but states are not required to halt.

  • In states where enforcement continues, the practical parity floor may be higher than the federal minimum (Epstein Becker Green, 2025).


A closely related data point emerged from the American Medical Association's April 17, 2026, advocacy update: the Mental Health Parity Index, which uses health insurers' own data to measure access disparities, found that 43 states show disparities in access to in-network mental health care relative to physical health services. This is the same infrastructure the 2024 rule was designed to address (AMA, 2026). With federal enforcement diminished, the burden of addressing those disparities now falls disproportionately on individual providers, state regulators, and payers who choose to self-regulate.


Medicaid Work Requirements: Implementation Is Already Underway

The One Big Beautiful Bill Act requires states to implement Medicaid work requirements by January 1, 2027, with the option to begin earlier.


  • Nebraska will be the first state to do so, with implementation set for May 1, 2026.

  • Montana has announced July 2026.

  • Arkansas will begin implementation in July but has stated that no one will face consequences for noncompliance until January 1, 2027.


These operational realities are taking shape now, at different speeds and with different rules depending on the state (Ballotpedia News, 2026).


Under federal law, able-bodied adults ages 19 to 64 in the Medicaid expansion population must demonstrate 80 hours per month of qualifying activity: employment, job training, education, or community service, to maintain coverage.

States must decide whether to require applicants to show one, two, or three months of compliance before enrollment.


  • Indiana was the first state to set the maximum three-month look-back period.

  • Idaho enacted similar legislation on April 10, 2026, requiring three consecutive months of documented compliance before enrollment (KFF Health News, 2026). That decision meaningfully raises the bar for the most economically vulnerable applicants, who often work in nontraditional employment arrangements and may struggle to document consistent hours.


A Reuters/U.S. News report published on April 13, 2026, captured a reality providers need to understand clearly: states are waiting for federal guidance that has not yet arrived and is not expected until June. The $200 million appropriated for implementation is widely considered insufficient, and CMS has not yet issued detailed definitions of qualifying exemptions, acceptable documentation formats, and what volunteer work counts toward the requirement. Insurers managing Medicaid benefits have stated they cannot yet launch effective outreach programs because the operational parameters do not exist (U.S. News/Reuters, 2026). The result is a system preparing to disenroll people before it fully understands who should be exempt.

The Disenrollment Risk Is Real and Near-Term

The Congressional Budget Office projects that 18.5 million adults will be subject to these requirements across 42 states and the District of Columbia. Of the estimated 11.8 million people who will lose Medicaid coverage under H.R. 1 overall, roughly 4.8 million are attributed specifically to the implementation of work requirements (Center for Health Care Strategies, 2025; APA Services, 2026).

Research and prior state-level implementations, including Arkansas's short-lived 2018 program, which led to 18,000 people losing coverage before a court halted it, consistently show that the majority of coverage losses occur among people who are already working or in school, or who have qualifying exemptions but fail to navigate the documentation and reporting processes required to prove it.


For behavioral health providers, the downstream effects are predictable: individuals with serious mental illness, substance use disorders, or unstable housing are among the most likely to be disenrolled for administrative reasons rather than for actual ineligibility. Service disruptions, gaps in medication continuity, and increased crisis presentations are expected consequences. Providers who have built service models around consistent Medicaid enrollment will face both patient-side disruption and revenue instability as enrollment patterns become less predictable.

States are required by law to conduct outreach to affected Medicaid members between June 30 and August 31, 2026, using at least two forms of communication. Providers and community-based organizations are expected to serve as a key conduit for that outreach, a role that will require additional coordination without corresponding reimbursement (CMS, 2025).


Medicaid Financing: The Structural Shift Is Now Operational

The broader Medicaid financing landscape crossed a threshold in 2026, shifting from policy debate to operational reality.


The One Big Beautiful Bill Act's most immediate provision for this calendar year was the January 1, 2026 sunset of the enhanced Federal Medical Assistance Percentage (FMAP) that had incentivized and sustained Medicaid expansion under the Affordable Care Act. States that had structured their Medicaid programs around the 90% federal match for expansion populations are now working with less federal support (APA Services, 2026).


A RAND Health analysis published in late February 2026 estimated that state Medicaid budgets will decline by $665 billion over the next decade due to the new federal law. The impact varies substantially by state.


  • Arizona, Iowa, and Nevada face Medicaid budget reductions exceeding 15%.

  • California and New York will absorb the largest total dollar losses, $112 billion and $63 billion, respectively.

  • States that relied more heavily on financing strategies such as state-directed payments and provider taxes will face the sharpest near-term pressure, while some states, including Florida, may see relatively modest impacts due to their financing structures (Stateline, 2026).


The closure of what CMS has characterized as a healthcare-related tax 'loophole' adds another layer of pressure: on April 3, 2026, CMS finalized its Preserving Medicaid Funding for Vulnerable Populations rule, establishing transition timelines for states to unwind financing arrangements that impose disproportionate tax burdens on Medicaid Managed Care Organizations.


States with newer MCO tax waiver approvals have until the end of the calendar year 2026 to comply; others have until the end of their FY 2027 or FY 2028 (CMS, 2026b). For states that had used these arrangements to draw down additional federal match, the effect is a direct reduction in available Medicaid funding.


By December 31, 2026, states must also begin conducting Medicaid eligibility redeterminations at least every six months, doubling the frequency of the previous annual cycle. When the Medicaid unwinding process began in April 2023, it used a similar mass redetermination approach and disenrolled millions of people for procedural reasons, even though they remained eligible. States now face a permanent, biannual version of that process, which has direct implications for provider caseloads and authorization continuity (Pew Charitable Trusts, 2026).


What This Means for Optional Services

The compounding effects of higher FMAP losses, provider tax restrictions, and rising administrative costs create predictable pressure on the service lines that matter most to behavioral health providers: optional Medicaid services.


Peer support, case management, psychosocial rehabilitation, and community-based interventions are, by regulatory classification, discretionary. They are the first categories states examine when they need to reduce expenditures, adjust rate structures, or tighten utilization management. National data continue to confirm that these services are increasingly subject to scrutiny, conditional approval, and restricted reimbursement, even before the larger H.R. 1 cuts take full effect in 2027 and 2028 (KFF, 2026a).
Providers that rely on these services for a significant share of their revenue should actively quantify that exposure now. The window to reposition service models, strengthen documentation systems, and develop alternative revenue structures is narrowing as state budget decisions accelerate into fiscal year 2027 planning cycles.

Medicare: Provider Directory Requirements and Network Accountability

On the Medicare side, the most relevant April 2026 development is the full activation of the Medicare Advantage provider directory requirements, which took effect January 1, 2026.


Under CMS's Preserving Medicaid, Closing a Health Care-Related Tax Loophole Final Rule and the MA provider directory regulation, MA organizations must now submit provider directory information directly to CMS for publication on Medicare Plan Finder, update that data within 30 days of any changes, and attest to its accuracy at least annually (Certifi, 2025). The goal is to address the widespread 'ghost network' problem, in which providers listed in a plan's directory are unavailable, not accepting new patients, or no longer participating.


For behavioral health providers, ghost networks are a structural access failure repeatedly documented in OIG and GAO investigations.


  • An OIG report from October 2025 found that approximately 45 percent of active behavioral health providers listed in Medicare and Medicaid managed care networks were not accepting new patients.

  • About 24 percent of those who appeared available were unreachable or had not provided services to plan members in the prior year (OIG, 2025).

  • The new provider directory requirements are designed to surface these discrepancies, which means providers listed in MA directories but not actively participating risk being identified and removed, creating both a compliance obligation and an opportunity.


Plans are now subject to increased audit activity as CMS addresses prior GAO criticisms of its oversight of network adequacy.


  • Starting in 2026, MA plans must establish utilization management committees to annually review prior authorization policies for consistency with current clinical practice.

  • For behavioral health services, which have historically been subject to more restrictive prior authorization than comparable medical services, this committee requirement creates a documented internal review obligation that did not previously exist (newmedicare.com, 2026).


HiQuity Insight

The parity non-enforcement decision and the Medicaid work requirement implementation share a structural logic: both shift risk and responsibility downward from federal regulators to states, from states to managed care plans, and from plans to providers and patients. Providers who wait for clarity from above before making operational adjustments are likely to find that the ground has already shifted beneath them.


Three things distinguish providers who navigate this environment well:

1) they know precisely which of their service lines depend on optional Medicaid funding;

2) they have built a documentation and data infrastructure that can withstand payer scrutiny and prior authorization challenge; and

3) they have activated relationships with their state Medicaid agency, managed care partners, and advocacy organizations rather than waiting to be informed.


The federal policy environment in 2026 rewards organizations that operate with systems-level awareness, not those who rely on historical funding assumptions.

On parity specifically: the 2013 MHPAEA rules are still in force.


  • Providers should not interpret non-enforcement of the 2024 rule as a signal that parity protections are gone.

  • Plans are still required to maintain NQTL comparative analyses.

  • Prior authorization denials for behavioral health services remain legally challengeable if they exceed the limitations imposed on comparable medical services.

  • In states that have adopted the 2024 rule into state law, the stronger protections apply.

  • Know your state's position and document accordingly.


Leadership Action Checklist

Action

Target Date

Determine your state's current position on MHPAEA 2024 rule enforcement; contact your state insurance department if unclear.

May 15, 2026

Audit all prior authorization denial patterns for behavioral health services against comparable medical services; begin building a parity documentation file.

May 31, 2026

Quantify revenue exposure from optional Medicaid services as a percentage of total revenue by service line.

May 31, 2026

Identify which of your patients are in Medicaid expansion and likely subject to work requirements; map how your organization will support them through outreach required by June–August 2026.

June 15, 2026

Review CMS work requirement guidance when released in June; assess operational impact on eligibility workflows.

June 30, 2026

Verify accuracy of your organization's listings in all managed care provider directories; submit corrections proactively.

June 1, 2026

Assess state budget cycle decisions for FY 2027 as they become available; monitor for rate changes or utilization management tightening in optional service categories.

Ongoing


Strategic Support for What Comes Next

The policy changes taking shape in May 2026 do not affect all providers equally.


Organizations with robust data systems, diversified service models, and active engagement with their managed care and state Medicaid partners are better positioned to adapt. Those still relying on historical funding assumptions, particularly regarding optional services, enrollment stability, and parity protections, face compounding risk that may not become apparent until it is difficult to reverse.

HiQuity Solutions partners with behavioral health and social service organizations to evaluate optional Medicaid service exposure and revenue risk, strengthen documentation and data defensibility for parity compliance and prior authorization challenges, develop managed care strategies in response to network adequacy and utilization management changes, and position organizations for the enrollment disruption likely to accompany work requirement implementation.


If your organization has not yet assessed its specific exposure to the changes described in this issue, now is the time to do so. To discuss your organization's risk profile and strategic options, contact us.



References


APA Services. (2025, May 21). Nonenforcement of 2024 Mental Health Parity Rule. https://www.apaservices.org/practice/news/nonenforcement-2024-mental-health-parity-rule


APA Services. (2026). Update on Cuts to Medicaid Funding. https://updates.apaservices.org/update-on-proposed-cuts-to-medicaid-funding



Center for Health Care Strategies. (2025). A Summary of Federal Medicaid Work Requirements. https://www.chcs.org/resource/a-summary-of-national-medicaid-work-requirements/


Certifi. (2025). Medicare Advantage Provider Directories: New CMS Final Rule for 2026–2027. https://www.certifi.com/blog/medicare-advantage-provider-directories-new-cms-final-rule-for-2026-2027/


CMS. (2025). December 2025 Work Requirements Guidance (CIB12082025). https://www.medicaid.gov/federal-policy-guidance/downloads/cib12082025.pdf


CMS. (2026b). Preserving Medicaid Funding for Vulnerable Populations — Closing a Health Care-Related Tax Loophole Final Rule. https://www.cms.gov/newsroom/press-releases/cms-shuts-down-massive-medicaid-tax-loophole-saving-billions-federal-taxpayers-restoring-federal


Commonwealth Fund. (2026, January 21). Behavioral Health Parity Takes Step Backward Under Trump Administration. https://www.commonwealthfund.org/blog/2026/behavioral-health-parity-takes-step-backward-under-trump-administration


Departments of Labor, HHS, and Treasury. (2025, May 15). Statement Regarding Non-Enforcement of the 2024 MHPAEA Final Rule. https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/mental-health-parity/statement-regarding-enforcement-of-the-final-rule-on-requirements-related-to-mhpaea


Epstein Becker Green. (2025, May 13). Federal Regulators Announce Non-Enforcement of the 2024 MHPAEA Rule. https://www.healthlawadvisor.com/federal-regulators-announce-non-enforcement-of-the-2024-rule-for-mental-health-parity


KFF. (2026a). Medicaid: What to Watch in 2026. https://www.kff.org/medicaid/medicaid-what-to-watch-in-2026/


KFF Health News. (2026, April 16). New Federal Medicaid Rules Require One Month of Work. Some States Demand More. https://kffhealthnews.org/news/article/federal-medicaid-work-rules-one-three-months-indiana-missouri/


OIG. (2025). Behavioral Health Provider Availability in Medicare Advantage and Medicaid Managed Care (OEI-02-23-00540). https://oig.hhs.gov/documents/evaluation/11233/OEI-02-23-00540.pdf


Ogletree Deakins. (2025, May 16). Regulators Pause Mental Health Parity Rules Enforcement. https://ogletree.com/insights-resources/blog-posts/regulators-pause-mental-health-parity-rules-enforcement/


Pew Charitable Trusts. (2026, January 14). New Federal Medicaid Policies Compound State Budget Pressures. https://www.pew.org/en/research-and-analysis/articles/2026/01/13/new-federal-medicaid-policies-compound-state-budget-pressures


Stateline. (2026, March 4). State Medicaid Budgets Will Decline by $665 Billion Under New Federal Law. https://stateline.org/2026/03/04/state-medicaid-budgets-will-decline-by-665-billion-under-new-federal-law-report-finds/


U.S. News/Reuters. (2026, April 13). States, Insurers Await Needed Details to Implement New US Medicaid Work Rules. https://www.usnews.com/news/politics/articles/2026-04-13/states-insurers-await-needed-details-to-implement-new-us-medicaid-work-rules


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