A federal rule that took effect July 31, 2026, permanently walls off two groups of Medicaid enrollees from a work-hour count that could otherwise cost them their coverage: young adults who aged out of the foster care system and people enrolled in a certified drug or alcohol treatment program. The Centers for Medicare & Medicaid Services built the carve-out into the same interim final rule that created the 80-hour community engagement requirement, treating both groups as outside the count entirely rather than as exceptions someone has to apply for. States now have to identify these enrollees before the requirement is ever applied to them, not after.
Aged-Out Foster Youth Never Count as “Applicable” in the First Place
Under the rule, a former foster care enrollee is not someone who qualifies for an exemption after the fact. The person is excluded from the legal definition of an “applicable individual” from the start, which means a state Medicaid agency has no authority to even screen that person against the 80-hour standard. The category covers people under age 26 who aged out of foster care, were enrolled in Medicaid while they were in the system, and are not already covered through a different mandatory eligibility group, such as one based on a disability determination.
CMS’s own fact sheet on the interim final rule lists former foster care youth as one of several categories the agency calls “specified excluded individuals,” a status built into the statute itself rather than a discretionary exception. That puts it in a different legal bucket than the mandatory exceptions written for people who are pregnant, incarcerated, or under 19, all of whom are still technically “applicable” but excused from reporting hours under specific circumstances.
The distinction traces back to section 71119 of the Working Families Tax Cut law that President Trump signed in July 2025, which added the community engagement requirement to the Social Security Act and directed CMS to define exactly who counts as an applicable individual before any state could begin enforcing it. Congress wrote former foster youth out of that definition entirely, rather than leaving their treatment to agency discretion.
Because the category sits outside the work-requirement structure, a state cannot request proof of employment, school enrollment, or community service hours from a former foster youth as a condition of keeping Medicaid, and cannot use a missed reporting deadline to start the 30-day disenrollment clock that applies to enrollees who are actually subject to the requirement. The exclusion has to be identified before any hours question is ever asked.
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A Treatment Program Has to Clear a Federal Definition to Count
The second carve-out is narrower than it sounds. CMS’s rule does not exempt anyone who simply says addiction has made working difficult; it excludes people actively enrolled in a qualifying drug or alcohol rehabilitation or treatment program, using a definition aligned with the one that already governs Supplemental Nutrition Assistance Program work rules. The program generally has to be run by a nonprofit organization or a public community mental health center, not an informal or self-directed effort.
That status is separate from the rule’s medically frail exemption, which can also reach a substance use disorder but only for someone who is not already in stable recovery of five years or more, and who can additionally show the condition impairs the ability to meet the requirement. A person currently enrolled in an active treatment program does not need to make that second showing, because the treatment-program exclusion stands on its own terms as a specified exclusion rather than a case-by-case medical determination.
For states, that means a treatment-program exclusion cannot be identified from a diagnosis code the way some medical-frailty determinations can be. The agency has to confirm the person is currently enrolled in a program that meets the specific structural definition, which shifts part of the verification burden onto documentation supplied by the treatment provider rather than a caseworker’s own assessment.
States Have to Find These Enrollees Before They Ask Them Anything
CMS’s rule requires states to attempt what regulators call ex parte verification first, meaning a Medicaid agency has to check existing state and federal data, such as child-welfare enrollment records or treatment-program files already on file, before it ever sends a former foster youth or a treatment-program participant a request to prove their status. The burden sits with the state’s own systems, not with the enrollee’s paperwork, at least as a starting point.
Self-attestation can stand in for that data match only through 2027, according to a policy summary published by the Center for Health Care Strategies. Starting January 1, 2028, a state generally has to require documentation of specified-excluded-individual status whenever reliable electronic data is not already available, narrowing the window in which a data gap alone could wrongly flag someone who was never supposed to be asked about work hours at all.
States must have those verification systems built before the January 1, 2027 deadline CMS set for the broader community engagement requirement, and a misclassification carries a real cost in either direction. Treating an excluded former foster youth or treatment-program participant as an ordinary applicable individual triggers the same 30-day notice-and-cure period and disenrollment risk the rule reserves for enrollees who genuinely have to report hours, applied to a population Congress specifically wrote out of that count in the first place.
This article was produced with AI assistance and reviewed by The Money Overview editorial team.
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