National Council for Mental Wellbeing – Medicaid and HR 1 Updates

On July 21, the Centers for Medicare and Medicaid Services (CMS) announced it was deferring more than $1 billion in federal Medicaid payments, roughly $867.5 million to California and $199 million to Minnesota, pending state documentation supporting claims the agency flagged as high-risk. For California, CMS pointed to in-home supportive services spending growth of about 24% over two fiscal quarters against 12% nationally, accounting for $391 million, plus $250 million tied to providers deemed high fraud risk and $221 million linked to eligibility concerns; most of Minnesota’s $199 million involves providers the state had disenrolled on fraud suspicion. The Department of Health and Human Services has framed the deferrals as pauses rather than cuts, recoverable once states substantiate the claims.

On July 21, CMS released a proposed rule relating to changes to provider tax arrangements. The rule would limit how much states can tax health care providers to help pay for Medicaid. Currently states can tax providers up to 6% of what they take in from patients and still pay them back through Medicaid. The rule would replace the 6% with a separate cap for each state and each type of provider, frozen at whatever they were taxing on July 4, 2025. In states that expanded Medicaid, those caps then shrink by half a percentage point each year starting in 2028 until they hit 3.5% in 2032. Comments on due Sept. 21, and National Council will submit comments on the proposed rule and the impact to behavioral health clinics and providers.

CMS has released outreach materials for enrollees, clinics, and care providers intended to inform beneficiaries of what to know about the community engagement requirements implemented by H.R.1. The materials include a fact sheet, social media toolkit, fillable flyer, and a summary of findings from a focus group study conducted with current Medicaid beneficiaries in four Medicaid expansion states in early April 2026. These materials, coupled with practice recommendations and guidance documents available on National Council’s H.R.1 Hub, can help patients and providers prepare for the launch of community engagement requirements in most states on Jan. 1.

On July 21, the National Council, in collaboration with the College for Behavioral Health Leadership and HMA, hosted a webinar titled, “Workforce Solutions Jam –  H.R.1 and the Future of Behavioral Health: What Leaders Need to Know Now.” This was the first in a three-part webinar series that will help behavioral health providers, association leaders, and workforce stakeholders understand key provisions of H.R.1, prepare for implementation, and develop approaches for leading through change. Participants will gain insights, practical tools, and real-world examples to help their organizations adapt while remaining focused on their mission and the communities they serve. The next installment will take place on August 18 at 1 PM EST. Register now!

CMS has released new guidance implementing H.R.1’s budget neutrality requirements for Medicaid 1115 demonstrations. Starting Jan. 1, 2027, CMS cannot approve new demonstrations, renewals, or amendments unless the Chief Actuary certifies they won’t increase federal expenditures, with savings rollover cut from 10 years to 5, administrative costs newly included in neutrality tests, and stricter renewal standards for existing demonstrations. Read NCMW’s overview of what the guidance means for states and active demonstrations: Medicaid Demonstration Budget Neutrality Resource.