Hundreds of thousands of low-income Arizonans with serious medical conditions will soon face new hurdles to keeping their Medicaid coverage under federal work requirements taking effect in January.
The changes will also cost Arizona’s Medicaid agency millions of dollars and require healthcare providers to document whether some patients are too sick to work—a responsibility providers say they are ill-equipped to take on.
The requirements come from the sweeping budget law President Donald Trump signed in July 2025, which overhauled Medicaid. Under the law, many adults covered by Medicaid expansion must document 80 hours a month of work, job training or volunteering or attend school at least half-time to keep their coverage.
People considered “medically frail” are exempt. But a new rule, published June 3 by the Centers for Medicare & Medicaid Services (CMS), requires individuals to prove they have a qualifying condition and that it “significantly impairs” their ability to work to obtain that status.
“Even if you have cancer, that doesn’t necessarily exempt you from having to work,” said Amy Taylor, CEO of Mariposa Community Health Center in Nogales. “You have to be sick enough with that cancer to be exempt.”
Several states, including Arizona, say the June rule is a sharp departure from the informal guidance CMS initially provided. Arizona had designed its system to automatically identify people who qualified for exemptions using diagnosis codes and other medical information, without having to judge how severely their conditions affected their ability to work.
Arizona is among 25 states challenging the rule in federal court, arguing that it goes beyond what Congress authorized. As the lawsuit unfolds, the state’s Medicaid agency, the Arizona Health Care Cost Containment System (AHCCCS), must prepare to implement the changes in January as they stand.
For the first year, states can allow people to declare themselves medically frail without submitting supporting records, an approach AHCCCS said it is “leaning heavily” on to ease the burden on members. The agency hasn’t said what documentation people will need to provide after that, or how it will assess whether someone’s condition is significant enough to qualify.
State leaders warn that once that temporary flexibility expires, new documentation requirements could delay exemption decisions and make it harder for people who already face major health barriers to keep their Medicaid coverage.
“Medicaid exists to protect the most vulnerable Arizonans, and this (rule) unlawfully undermines that protection,” Arizona Attorney General Kris Mayes said in a June press release. “Arizonans otherwise eligible for coverage shouldn’t lose access to their healthcare because of unnecessary red tape.”
More than 429,000 Arizonans ages 19 to 64 are covered through Medicaid expansion, a program created under the Affordable Care Act for people with low incomes. Many could be subject to new federal work requirements starting Jan. 1.
Federal law broadly outlines who could qualify for a medical frailty exemption, including people with serious or complex health conditions, substance-use disorders, disabling mental health conditions and physical, intellectual or developmental disabilities. But it doesn’t specify which conditions qualify or what level of impairment is sufficient for an exemption, leaving states to make those determinations.
In a court declaration filed in the states’ lawsuit, AHCCCS assistant director Patricia Dennis estimated that more than 100,000 Arizonans covered by Medicaid expansion had used healthcare services frequently enough over the previous 12 months to suggest they may have chronic conditions or complex care needs—and likely would have been categorized as medically frail without additional documentation before the new rule.
Under an optional three-tiered framework CMS released in September, states could still automatically exempt some people based on their diagnoses alone, such as patients receiving treatment for cancer that has spread throughout the body.
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For others, states could combine diagnosis codes with hospital, prescription, medical equipment or other records to determine eligibility. Cases that can’t be resolved through those records could require manual review and more documentation from a provider.
States still lack clear guidance on how far they can go in granting exemptions, though, and their decisions could be subject to federal scrutiny.
If federal officials determine that a state is exempting people who could actually meet the work requirements, it could face financial penalties, according to Amaya Diana, a policy analyst with health research group KFF.
For patients already facing health challenges, even relatively simple administrative requirements could create barriers to keeping their coverage.
Someone without reliable transportation, for example, may have difficulty getting to a provider to obtain documentation, according to Claudia Maldonado, director of outreach and enrollment services for the Arizona Alliance for Community Health Centers. Others may struggle with the technology needed to upload documents or report the information online.
Diana warned that those obstacles could cost people their coverage even if they qualify for an exemption, disrupting care for the very conditions that make them eligible.
For providers, the new rule could mean taking on a role some say they are not equipped to perform. Dr. Eladio Pereira, Mariposa Community Health Center’s chief medical officer, said that being asked to assess patients’ ability to work feels like a conflict of interest.
“We’re advocates for our patients,” he said. “We don’t decide, for the most part, disability issues. We document what we hear and what we see, but typically, it’s another party making the determination.”
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Other providers raised similar concerns about the demands of the new rule during a May 4 AHCCCS workshop attended by 75 chief medical officers and other healthcare leaders across the state. According to Dennis, attendees unanimously agreed it would be impractical for providers to fill out documentation for hundreds of thousands of people, citing capacity, liability concerns and potential strains on the doctor-patient relationship.
For the state, the challenges are logistical and financial. In her court declaration, Dennis said the agency spent nearly a year and thousands of staff hours preparing for federal changes to Medicaid. But the new rule requires AHCCCS to develop systems it hadn’t anticipated needing, including a way for providers to submit documentation supporting patients’ exemptions.
She estimated that work would cost the state another $16 million.
Arizona has already struggled to implement another provision of the same federal budget law: expanded work requirements for the Supplemental Nutrition Assistance Program, or SNAP. Between July 2025 and June 2026, the number of Arizonans receiving SNAP benefits fell by 52%, the steepest decline of any state, according to data from the Center on Budget and Policy Priorities.
That amounts to more than 400,000 people who have dropped off the program. Arizona officials told the Associated Press that the drop was largely tied to difficulties administering the new requirements, including increased call volumes and extra verification steps.
Once the work requirements begin in January, most Arizonans on Medicaid expansion will have to renew their coverage every six months, rather than once a year. States also must verify medically frail status annually, even for people whose conditions are unlikely to change.
AHCCCS sent notices to more than 400,000 members in September letting them know they could be affected. The agency also launched a website, KeepMyAHCCCS.com, that explains the requirements, exemptions and reporting options.
But those notices provided little information about how people can qualify for a medical frailty exemption. In her court declaration, Dennis said the agency could not yet tell members what they’d need to do to prove their eligibility, because the new rule requires assessments of their ability to work that the state hadn’t planned for.
A spokesperson for the agency told AZCIR that AHCCCS “will be in a better position to estimate member impacts after the federal government clarifies the standards that will be applied beginning in January 2027.”
The timeline leaves little room to change course. Dennis said Arizona’s eligibility system must be ready for a Dec.10 launch, even as the lawsuit continues and questions remain about how the new exemptions will work.
A federal judge is scheduled to hear arguments in the suit on Oct. 22 before deciding whether the case should proceed to trial.
