H.R. 1 Overview:
Changes Are Coming to Medicaid

Overview

On July 4, 2025, a new federal law called H.R. 1 (also known as the “One Big Beautiful Bill Act” and the “Working Families Tax Cut Legislation”) was passed by Congress. Over the coming years, this law will create multiple changes to how AHCCCS determines eligibility, how AHCCCS members maintain coverage, and how health care is paid for throughout Arizona.

The law also includes changes to many other administrative processes. As explained below, the multitude of changes included within H.R. 1 are required to be implemented by different dates between 2025 and 2032.

What Arizonans Need to Know about H.R. 1

  • Most AHCCCS members will continue to be eligible for coverage, but the new federal law will create significant changes for specific groups of members.
  • Changes are phased in over multiple years, and some of the larger changes (like work requirements) begin in 2027.
  • AHCCCS wants to help eligible members stay covered and will be sharing updates to keep members informed.
  • Members should keep their contact information up to date on the Health-e-Arizona Plus website to ensure they receive information about potential coverage changes.

Medicaid 101

To better understand the various changes that will be coming as a result of H.R. 1, it’s important to understand a few key aspects of how AHCCCS and Medicaid programs across the nation currently operate.

Who pays for Medicaid?

AHCCCS is Arizona’s Medicaid program that is funded jointly by both the federal and state governments for individuals and families who qualify based on income levels. The amount of funding the federal government contributes to the program is commonly referred to as the Federal Medical Assistance Percentage (FMAP) and varies based on several factors including the eligibility group of the individual member. H.R. 1 includes several changes that will result in a decrease in the federal government’s FMAP, which means there will be a significant cost shift to the state.

What is an Expansion Adult?

The term “Expansion Adults” is commonly used to refer to a specific group of individuals who are eligible for the Medicaid program due to the Affordable Care Act. This group typically includes adults under the age of 65 who earn up to 133% of the federal poverty level. This group will be particularly impacted by H.R. 1’s requirements for community engagement and redetermining eligibility every 6 months.

H.R. 1 Implementation Timeline

H.R. 1 Timeline

Coverage & Eligibility Changes Included in H.R. 1

Community Engagement Requirements (aka Work Requirements) *See FAQs below

  • Starting January 2027, this law requires certain Medicaid Expansion adults to work, go to school, volunteer, or participate in another defined qualified activity for 80 hours each month, or to have earned at least $580 in the month to maintain their AHCCCS coverage.
  • Many people are exempt and will not need to meet these requirements (e.g., kids, pregnant individuals, people with disabilities, caregivers, and more). For a full list of exemptions, see the FAQ document below.

Renewals Every 6 Months

  • Starting January 2027, H.R. 1 will require certain Medicaid Expansion adults to renew their AHCCCS coverage twice each year instead of once.
  • This does not apply to kids, adults over the age of 65, individuals with disabilities, Tribal members, and multiple other groups.
  • This provision directly interacts with the new community engagement requirements above. As a result, members subject to these requirements will need to prove engagement with a qualifying activity every 6 months.
  • AHCCCS will be sharing additional information with members and stakeholders, and working to make this process as streamlined as possible.

Funding “Prohibited Entities”

  • As of the signing of this new legislation (July 2025), H.R. 1 required AHCCCS to stop paying Planned Parenthood for all types of care until July 3, 2026.
  • If a member used Planned Parenthood, their health plan can help find another provider.

Eligibility Changes for Certain Immigrants

  • Beginning October 2026, certain immigrants will no longer qualify for AHCCCS or KidsCare coverage.
  • H.R. 1 limits Medicaid eligibility to lawful permanent residents, certain Cuban and Haitian entrants, and individuals from the Compacts of Free Association nations. Refugees, asylees, and other humanitarian groups who were previously eligible for full Medicaid coverage will only qualify for emergency services.
  • Additionally, federal payments for Federal Emergency Services (FES) under Medicaid will be lowered, shifting additional costs to the state.
  • AHCCCS will send notices to impacted members to explain their options.

Retroactive Coverage

  • Typically, Medicaid programs are required to provide retroactive coverage for three months preceding the individual’s Medicaid application. However, AHCCCS has an existing waiver of these requirements for expansion adults which is commonly referred to as the “Prior Quarter Coverage” waiver.
  • Beginning January 2027, the amount of retroactive coverage Medicaid programs will be able to provide will be decreased to one month for expansion adults and two months for kids, adults aged 65+, and individuals with disabilities.
  • AHCCCS is currently evaluating how this new provision interacts with the existing Prior Quarter Coverage waiver.

Cost Sharing

  • Beginning October 2028, certain expansion adults with income above 100% of the federal poverty level will be subject to cost sharing for some of their care.
  • Certain services and care delivered at certain settings are exempt from this requirement and will still be covered free of charge. This includes primary care, mental health visits, prenatal care, pediatric care, emergency care, and care delivered at federally qualified health centers (FQHCs) and rural health clinics (RHCs).

Provider Assessment and Payment Changes Included in H.R. 1

Reduced Provider Tax/Assessment

  • Provider taxes (also known as assessments) are state-imposed taxes that are used to help fund certain Medicaid programs. Arizona's provider assessment helps cover the state’s share of costs for Medicaid expansion populations and to increase payment rates to certain provider types.
  • Beginning October 2027, H.R. 1 requires states to reduce the maximum allowable provider assessments from 6% to 3.5% of net patient revenue. The decrease will be phased down by 0.5% each year, starting in Federal Fiscal Year 2028 (FFY28) and reaching 3.5% in FFY32.

Reduced State Directed Payments to Providers

  • State Directed Payments (SDPs) are supplemental payments that enhance Medicaid reimbursement rates for certain provider types.
  • Beginning January 2028, H.R. 1 requires states to decrease SDPs by 10 percentage points each year until the total rate reaches 100% of the Medicare Payment Rate.

Payment Reductions for Erroneous Payments

  • Medicaid and CHIP programs across the nation are subject to audits, such as Payment Error Rate Measurement (PERM) that measure the amount of improper payments made by the Medicaid program.
  • If more than 3% of a state’s total payments in a given year are determined to be improper, CMS must withhold (or “disallow”) federal funding for the portion of improper payments above the 3% threshold. Historically, CMS may waive all or part of this funding reduction if the state made good-faith efforts to lower the error rate, typically through a corrective action plan or other program integrity activities. 
  • Beginning October 2029, H.R. 1 limits CMS authority to issue good faith waivers and in turn limits CMS from waiving the withholding of federal funds for error rates greater than the 3% threshold.
  • AHCCCS is evaluating the potential impact of this change and continues to implement strategies focused on mitigating payment errors. 

What to Expect from AHCCCS

  • AHCCCS is currently working on implementation plans to develop the processes, technology, communications, and systems changes required to comply with H.R. 1.
  • Notices and timely reminders will be shared with members and stakeholders to stay up to date and prepare for changes.
  • AHCCCS is expecting to receive more guidance from the federal government no later than June 2026 and will share updates accordingly.
  • This website will continue to be updated with new information and FAQs.

What Members Can Do Now

  • Members should keep their contact information updated with AHCCCS on the Health-e-Arizona Plus website.
  • Members should check their mail weekly and open all mail from the Department of Economic Security or AHCCCS. It may have important information related to these changes.

What Partners and Stakeholders Can Do Now

  • Assist members to ensure their contact information updated with AHCCCS on the Health-e-Arizona Plus website.
  • AHCCCS will be hosting forums and seeking input from community partners to build awareness of these changes. The agency welcomes insights into creative strategies to engage with impacted Arizonans.

Medicaid Community Engagement / Work Requirements : Frequently Asked Questions (FAQs)

  • Q1: What are Medicaid community engagement requirements?

    A: Medicaid community engagement or work requirements are new federal rules that will require certain adults to work or participate in approved activities in order to keep their Medicaid health coverage.

  • Q2: When will these requirements start?

    A: H.R. 1 requires states to begin implementing work requirements by December 31, 2026. The federal government will release detailed guidance to states by June 1, 2026, that will further inform various details of this new program.

  • Q3: Who has to meet the community engagement requirements?

    A: Not everyone on Medicaid will be affected. Community engagement requirements apply to Expansion Adults. This group typically includes adults who:

    • Are ages 19–64
    • Receive Medicaid through the Affordable Care Act (ACA) Medicaid expansion (i.e., who earn up to 133% of the Federal Poverty Level)
    • Do not qualify for an exemption (see list of exemptions in the question below)
  • Q4: How many hours will I need to complete each month?

    A: Members who are required to participate will need to complete at least 80 hours per month of approved activities or show they earn an income of at least $580/month (which is equal to 80 hours of the federal minimum wage).

  • Q5: What activities count toward the 80 hours?

    A: Approved activities may include:

    • Work
    • Job training or workforce programs
    • Education (at least half-time enrollment)
    • Community service
    • A combination of these activities

    AHCCCS will be developing additional details on how to report these activities.

  • Q6: Do the community engagement requirements apply to everyone on Medicaid?

    A: No. Many people are exempt and do not have to meet the community engagement requirements.

  • Q7: Who is exempt from the community engagement rules?

    A: You may be exempt if you are:

    • An American Indian or Alaska Native eligible for Indian Health Service care
    • A disabled veteran with a total disability rating
    • A caregiver for a child age 13 or younger or for a person with a disability
    • A former foster youth under age 26
    • Medically frail, including people with serious physical, mental health, or substance use conditions
    • Participating in a qualifying substance use disorder treatment program
    • Pregnant or within 12 months after pregnancy
    • Already meeting community engagement rules through programs like SNAP or TANF
    • Currently incarcerated or recently released
    • Experiencing a short-term hardship, such as hospitalization, living in an area where a federal emergency or disaster is declared, or living in an area with very high unemployment

    AHCCCS will be developing additional details about how to claim an exemption.

  • Q8: How will I know if I’m required to participate?

    A: AHCCCS will contact you if community engagement requirements apply to you. Outreach will begin in summer 2026 and may include mail, phone calls, texts, or online notices.

  • Q9: How will I report my work or activities?

    A: AHCCCS will be developing additional details on how to report these activities. The agency will provide step-by-step instructions on how to:

    • Report work or qualifying activities
    • Claim an exemption
    • Submit documentation if needed

    Reporting options may include online portals, phone, mail, or in-person assistance.

  • Q10: What happens if I don’t meet the work requirements?

    A: If you do not meet the work requirements at renewal or fail to report your activities:

    • You will receive a notice explaining what is missing
    • You will have additional time to take action
    • Your Medicaid coverage may end if no action is taken
  • Q11: Will I lose coverage right away if I fail to meet the work requirements?

    A: No. Coverage will not end immediately. Members will receive advance notice and have an opportunity to respond before any changes are made.

  • Q12: Can I get my coverage back if it ends?

    A: AHCCCS will provide information on how to reapply or restore coverage for members who become eligible again.

  • Q13: Why is Medicaid changing?

    A: Federal law now requires these rules as part of Medicaid eligibility for certain adults. States are required to follow community engagement rules while working to limit unnecessary coverage loss.

  • Q14: Will the state help me understand these changes?

    A: Yes. States are required to provide clear communication, support, and reminders to help members understand the rules, exemptions, and reporting process.

More information will be shared as the January 2027 implementation date approaches.