On February 2, Secretary Kennedy announced the Safety Through Recovery, Engagement, and Evidence-based Treatment and Supports (STREETS) Initiative that aims to address homelessness, opioid addiction, and improve public safety. The initiative will begin with a $100M investment that will focus on targeted outreach, psychiatric care, medical stabilization and crisis intervention, and connections to housing services. The Secretary also announced the Assisted Outpatient Treatment (AOT) program which will have $10M in grant funding to support adults with serious mental illness. The AOT program is civil court-ordered and provides a community-based outpatient mental health treatment program for individuals who are not able to be served through conventional outpatient treatment. The STREETS and AOT programs follow President Trump’s executive orders on January 29, “Addressing Addiction Through the Great American Recovery Initiative,” and July 24, 2025, “Ending Crime and Disorder on America’s Streets.” (US Department of Health and Human Services, February 2).
The Centers for Medicare & Medicaid Services (CMS) released data showing that about 23 million people selected Affordable Care Act marketplace plans during the most recent open enrollment period, compared with nearly 24.2 million enrollments for the prior plan year. Enrollment includes approximately 15.8 million selections through HealthCare.gov and 7.2 million through state-based exchanges, with about 3.4 million new enrollees and 19.6 million returning consumers. The figures reflect enrollment through January 15 for federal-platform states and January 10 for other state exchanges and come as lawmakers continue to debate the expiration of enhanced premium tax credits on January 1, which contributed to higher premiums for many enrollees. A recent poll by KFF found that healthcare costs remain a leading concern for voters, with a majority reporting increased costs over the past year and a substantial share indicating that the expiration of subsidies could influence their voting decisions in the upcoming midterm elections (Fierce Healthcare, January 29).
With the 2027 implementation deadline quickly approaching, many states do not currently have the capabilities to handle Medicaid work verification requirements and states anticipate the cost of establishing those capabilities may far exceed federal grants of $200M. On January 29, CMS announced pledges from tech companies to support states’ implementation of work requirements. Pledges include no-cost products and discounts on product implementation and ongoing services (discounts total $600M per CMS). CMS published a fact sheet with 17 vendors on track to contract with states to verify compliance with work and community engagement requirements and assist states with augmenting their Medicaid systems at low or no-cost over the next two years. 11 other vendors are currently listed as interested parties, but are not currently on the GSA schedule (CMS, January 29).
On January 30, the Senate passed an HHS appropriations “minibus” that would establish PBM reforms, funding to the NIH, and a two-year extension for Medicare telehealth services. Senate Democrats declined to vote on an appropriation bill that provides funding to the Department of Homeland Security (DHS). Senators reached a compromise and instead passed a 2-week continuing resolution, temporarily freezing funding to allow legislators time to deliberate on funding for the agency. On February 3, the House voted (217-214) to fund most of the bill’s appropriations and to provide temporary funding for DHS through February 13. President Trump later signed the bill, ending the partial governmental shutdown and providing funding for the HHS and Departments of Defense, Education, Energy, Labor, Transportation, and Treasury (Inside Health Policy, January 30; The Hill, February 3).
The Centers for Medicare & Medicaid Services (CMS) finalized a Medicaid provider tax rule, effective April 3, 2026, which will rebalance the statistical test used to evaluate state Medicaid provider taxes. Current regulations allow certain non-uniform or non-broad based healthcare related taxes, particularly taxes on managed care organizations, to impose higher tax rates on Medicaid taxable units than on non-Medicaid units while still passing existing regulatory tests, contrary to statutory requirements that such taxes be generally redistributive.
The final rule, “Preserving Medicaid Funding for Vulnerable Populations Closing a Health Care Related Tax Loophole,” adds safeguards to prohibit tax designs that directly or indirectly target Medicaid through higher rates, utilization tiers, proxy terminology, demographic groupings, or narrow classifications. CMS estimates the rule affects nine approved tax waivers across seven states and will reduce federal Medicaid spending by more than $78B over ten years, with tiered transition periods extending from the end of calendar year 2026 through state fiscal year 2028. This new rule, while anticipated, will have the effect of significantly reducing federal Medicaid funds directed through provider taxes in the impacted states. For additional details, visit our website for a detailed summary (CMS, January 29).
On January 29, the Department of Labor issued a proposed rule that would require increased transparency from pharmacy benefit managers for self-insured group health plans. Published on the Federal Register on January 30, the proposed rule marks the first time PBMs would be required to disclose information on rebates and other payments received from drug manufacturers, compensation received when prices differ from the plan to the pharmacy, and recuperated payments from pharmacies. The regulation would also allow plan fiduciaries to audit PBM disclosures for accuracy and create additional relief for plan fiduciaries if a PBM does not meet its obligations. This regulation follows President Trump’s April 2025 executive order, “Lowering Drug Prices by Once Again Putting Americans First.” The federal public comment period will end on March 31, 2026. The regulation’s main proposals align with current legislation in Congress regarding other PBM and drug pricing policies (Inside Health Policy, January 29; U.S. Department of Labor, January 29).
CMS issued updated guidance on State Directed Payments (SDPs) under Section 71116 of the Working Families Tax Cuts legislation through a February 2 Dear Colleague letter, replacing its September 9, 2025 guidance. The updated guidance focuses on SDP grandfathering and applies to SDPs subject to the statutory payment limits, including those tied to inpatient and outpatient hospital services, nursing facility services, and qualified practitioner services at academic medical centers.
The most notable update is CMS’s revised interpretation of the grandfathering window, which expands eligibility by counting 180 business days before or after the July 4, 2025 enactment date rather than calendar days. CMS also clarified eligible rating period examples, expressly prohibited revisions to SDP preprints or rating periods to qualify for grandfathering, and reinforced existing interpretations of key eligibility criteria. States and providers will need to assess when SDPs must phase down to the statutory payment limits beginning in CY 2028 and evaluate the resulting impact on payment amounts based on grandfathering eligibility and rating period alignment.
Sellers Dorsey experts summarized the updated guidance highlighting key changes including the revised interpretation of the grandfathering window, unaffected provisions, and more. View our summary here (CMS, February 2).
Considerations for Implementing Community Engagement Requirements: Principles and Policy Options
Children and Youth with Special Health Care Needs Transitions to Adult Coverage: Policy Options
Medicaid for Justice-Involved Youth Transitions to the Community
Behavioral Health in Medicaid and the State Children’s Health Insurance Program
Medicaid Payment Policies to Support the Home- and Community-Based Services (HCBS) Workforce
Automation in Medicaid Prior Authorization
The Nebraska Department of Health and Human Services announced on January 27 that it will no longer pursue a proposal to cap weekly paid hours for live-in family caregivers under the state’s Aged and Disabled (AD) waiver program. The decision follows extensive public comment, during which hundreds of Nebraskans raised concerns that reduced hours could diminish quality of life for aging adults and people with disabilities. The proposal would have reduced the cap from 112 caregiving hours per week to 40 hours per week for live-in caregivers. An additional 30 hours would have been available for outside providers.
Governor Pillen’s budget had included the proposed caps, asserting that the policy would result in an estimated $14.12M in state savings. The director for the Division of Developmental Disabilities had noted that the caps were intended to stabilize the waiver and ensure sustainability amid rising costs. In mid-2025, the waiver’s annual cost reached $383.6M compared to $91M in 2016. The proposal will now have a second public comment period from February 2 through March 4, 2026 (Nebraska Examiner, January 27).
On January 28, the South Dakota House State Affairs committee voted 8-4 on House Joint Resolution 5002 (“HJ 5002”), to send a bill that would put a request to repeal Medicaid expansion on voters’ ballots in November. The sponsor of the bill, Rep. Aaron Aylward (R-Harrisburg), believes that the state can no longer afford expansion of services, unless the state moves to cut spending in other areas or raise taxes to fund the program. The state expanded Medicaid in July 2023, after a 2022 ballot question for voters to expand eligibility. Opponents speak on the detrimental effects of loss of expansion and related costs to both patients and the healthcare system, with increased premiums for all insured South Dakotans, and uncompensated care. On January 29, the House of Representatives failed to pass the joint resolution. Although HJ 5002 failed, due to the passage of HJ 5001 in March 2025, voters will see an amendment to the state’s constitution that could repeal Medicaid expansion if the federal government drops funding from the historic 90% rate (South Dakota Searchlight, January 28; South Dakota Searchlight, January 29).
Nevada has launched a procurement for its Coordination Only Dual Special Needs Plan (D-SNP) program, with proposals due February 17 and selected managed care organizations required to begin coverage on January 1 next year. The state plans to issue intent-to-award notices on March 4 and final awards on May 12. Nine plans currently offer D-SNPs in Nevada. December enrollment data from the Centers for Medicare & Medicaid Services show UnitedHealthcare as the largest D-SNP carrier with 11,250 members, followed by Humana with 10,788 members. Nevada intends to select at least one plan to provide statewide D-SNP coverage, while allowing plans to limit participation to certain counties. Bidding plans must offer two D-SNP plan designs in each county they propose to serve, one for full dual-eligible beneficiaries and one for partial dual-eligible beneficiaries (Health Payer Specialist, January 28).
Missouri’s Department of Social Services told state lawmakers that additional staffing and technology investments are needed to meet new federal Medicaid and SNAP requirements and reduce program error rates. The department is working through a backlog of roughly 90,000 Medicaid renewals and said added contractors and system upgrades are needed before more frequent eligibility checks and work requirements take effect on January 1, 2027. Department leaders said Missouri could face up to $1.2B in federal financial penalties beginning in October 2029 if its Medicaid error rate remains above 3%. The most recent federal audit in 2019 found a Medicaid error rate of 35%. Officials attributed much of the error rate to delayed eligibility redeterminations linked to staffing shortages after Medicaid expansion. The governor’s budget proposal includes $294.6M in new spending in fiscal year 2027 and an additional $132M requested in the current fiscal year to implement the federal requirements. Lawmakers from both parties acknowledged the scale of potential penalties and discussed balancing near-term investments with longer-term fiscal impacts, including reductions in federal matching funds (Missouri Independent, January 28).
On December 29, 2025, CMS announced the awards for the Rural Health Transformation (RHT) Program. In accordance with federal statute, $25B will be distributed equally among all approved states and $25B will be allocated based on scores from the states’ applications. The $50B sum will be allocated over five years, with $10B available each year through 2030. All 50 states applied to receive funding, and all states were awarded funding, ranging from $147M in New Jersey to $281M in Texas for the first year of the program. The median amount of funding awarded by CMS is $201M. Common themes among states’ plans to improve rural health include increasing access to care through innovative methods, supporting and expanding the rural health workforce, improving infrastructure and technology capacity, and testing new value-based models of care (CMS.gov, December 29, 2025).
On Thursday, January 8, the House passed legislation that would extend the Enhanced Premium Tax Credits (EPTCs) for three years. The EPTCs expired at the end of December. There were 17 House Republicans who voted with Democrats to pass the bill 230 to 196. The bill now heads to the Senate, where leadership has indicated that the bill will not pass. However, it appears that there is now more bipartisan interest in creating a solution that may be similar to Representative Fitzpatrick’s previous bill which extended the EPTCs, but included several measures to curb potential fraud, waste, and abuse. Additionally, Republican members of Congress may want to see additional protections against federal funds being used for abortions under ACA plans (The Hill, January 8; Inside Health Policy, January 8).
On January 15, the White House released a healthcare reform package called ” The Great Healthcare Plan,” detailing the administration’s plan to lower drug prices and insurance premiums, maximize price transparency, and hold insurance companies accountable by requiring publication of additional data on healthcare costs and service denial rates. The plan did not explicitly address plans for ACA premium tax credits and instead calls for ceasing sending insurance companies taxpayer-funded subsidy payments and for the funds to instead be given directly to eligible beneficiaries to purchase a plan of their choice. Other key components include transitioning from using industry terminology to plain English, allowing for more pharmaceutical drugs to be available for over-the-counter purchase, and funding a cost-sharing reduction (CSR) program that could potentially save taxpayers $36B. The administration calls on Congress to pass legislation to enact the plan (Inside Health Policy, January 15; White House, January 15).
On January 13, CMS updated the master list of durable medical equipment (DME) items subject to increased documentation or review prior to use under Medicare, effective April 13. As outlined in the Federal Register, the new restrictions are aligned with the agency’s efforts to reduce fraud, waste, and abuse in the government programs. There will be 15 additional codes with new restrictions. Of the 15 new HCPCS codes, five are related to orthoses, two for pneumatic compression, and the remaining eight are for oxygen use. CMS states that oxygen supplies and equipment have the highest rate of improper payments, with an improper pay rate of 11.3% in 2024. These items will be subject to face-to-face encounters and written orders with the treating physician prior to delivery.
The remaining seven items outside of oxygen supplies and equipment will be subject to other prior authorization requirements. An additional 18 items will be added to the “Master List of DMEPOS Items Potentially Subject to Face-to-Face Encounter and Written Order Prior to Delivery,” which identifies them as vulnerable to fraud but does not automatically put restrictions in place. Notably, CMS recently finalized a prior authorization exemption process for DME suppliers that have a provisional affirmation rate of 90% or higher (Inside Health Policy, January 23).
A Republican lawmaker in Missouri has proposed a ballot measure that would add Medicaid community engagement requirements to the state Constitution. Lawmakers noted that the state will have to implement community engagement requirements regardless of any ballot initiative. However, lawmakers expressed that a constitutional change will ensure that it is more difficult to reverse the policy if the requirements change in the future. Representative Darin Chappell proposed the constitutional amendment in a House Committee meeting and believes that the change would bring cost savings to Missouri.
Representative Chappell’s proposal would require the Department of Social Services (DSS) to verify eligibility with community engagement requirements three months prior to application, but did not prescribe how often the Medicaid agency should verify eligibility after enrollment. Democratic lawmakers in Missouri have pushed back, alleging that the fiscal note for the constitutional amendment does not account for the full cost of the changes. If the proposed constitutional amendment does pass the state legislature, Missouri residents will still need to vote on the ballot initiative in order for it to go into effect. DSS requested $137M for FY2027 to implement community engagement requirements as outlined in law. Additionally, Governor Kehoe’s proposed budget for FY2027 does not allocate more positions within the DSS to perform eligibility determinations (Missouri Independent, January 16).
