Medicaid in retreat

Work requirements take effect January 1, 2027. For a behavioral health (BH) practice carrying 30% or more Medicaid census, that is not a policy deadline: it is a revenue forecast with a due date.

Medicaid is the single largest payer of behavioral health (BH) services in the United States, funding roughly 25% of all mental health and substance use disorder (SUD) spending in any given year, according to the Kaiser Family Foundation (KFF) and the Milbank Memorial Fund. For BH group practices in states with large Medicaid populations, the payer's contraction is not background noise: it determines panel size and revenue.

Two distinct episodes make up the current risk. The first has already passed. During the COVID-19 public health emergency (PHE), states agreed not to disenroll anyone from Medicaid in exchange for enhanced federal matching funds. Enrollment climbed from 71.4 million in February 2020 to a peak of 94.5 million in April 2023, a 32.4% increase. When disenrollment restarted in April 2023, 25 million people lost coverage by the time the unwinding concluded in August 2024. The Government Accountability Office (GAO) found that 69% of those disenrollments were procedural, meaning missed paperwork or address changes, not actual ineligibility. Twenty-three percent of the disenrolled remained uninsured afterward.

The second episode is still arriving. The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, mandates Medicaid work requirements for ACA (Affordable Care Act) expansion adults aged 19 to 64, with a national effective date of January 1, 2027. States that move early through 1115 waiver authority can implement before that date. The Congressional Budget Office (CBO) projects that the OBBBA's health provisions will cause 11.8 million people to lose coverage by 2034, with 4.8 million losing coverage directly through the work requirements and eligibility changes. BH services, primary care, and SUD services are explicitly exempted from the OBBBA's new cost-sharing rules, but exemption from cost-sharing does not protect against coverage loss itself.

In Fayetteville, Arkansas, a 12-clinician Certified Community Behavioral Health Clinic (CCBHC) running 58% Medicaid census started tracking redetermination status for its highest-utilization patients in May 2023. The clinic director describes what happened next without drama: within six months the clinic had lost contact with 14% of its Medicaid panel. Not because those patients became ineligible. Because the state mailed redetermination notices to old addresses and the patients never saw them. A single staff member spent the better part of a month working the county Department of Social Services phone tree, helping patients re-enroll one by one. That same clinic's compliance coordinator is now building a documentation file for the 2027 work-requirement exemption process. Patients with disabling mental health conditions can qualify for exemption, but the paper trail has to exist before the state asks for it, and states will not wait.

The math is simple. A practice with 30% Medicaid revenue in a state that implements work requirements early faces panel attrition before it has time to restructure its payer mix. Exiting Medicaid is not the answer: BH patients on Medicaid rarely have a commercial alternative, and abandoning them is not a business strategy. The answer is knowing, today, which patients are Medicaid-covered, which are in expansion-eligible age bands, and which already have documentation gaps, so that the work of exemption paperwork happens in 2026, not as a fire drill in January 2027.