H.R.1 and Medicaid: the documentation that proves an exemption

H.R.1, signed on July 4, 2025, made the largest changes to Medicaid eligibility since the Affordable Care Act. Two of them land squarely on behavioral health: community engagement requirements for adults in the expansion group, and eligibility redeterminations every six months instead of every twelve. Both take effect for most states at the end of 2026.

The law also carves out exemptions — and a large share of the people community mental health and substance use providers serve will qualify for one. The catch is that an exemption is only as good as the evidence behind it. When a state verifies status, the record your clinicians write becomes the proof. This post covers what the statute requires, who is exempt, and what a note needs to contain so that it can actually support an exemption without turning clinicians into eligibility workers.

What H.R.1 changes for expansion adults#

Section 71119 requires states to condition Medicaid eligibility for expansion adults aged 19 through 64 on 80 hours a month of qualifying activity: work, community service, participation in a work program, half-time enrollment in an educational program, or a combination. Earning at least the equivalent of 80 hours at the federal minimum wage also counts. States must begin by December 31, 2026; the Secretary may grant a good-faith extension to as late as the end of 2028.

Separately, states must redetermine eligibility for the expansion population every six months for renewals scheduled after December 31, 2026. Six-month cycles double the number of moments at which a person can lose coverage for procedural reasons — a missed letter, an unreturned form, an exemption that was true but never documented.

The Congressional Budget Office projected that the law as a whole would leave roughly 10 million more people uninsured by 2034, with the community engagement requirement the single largest driver. For behavioral health providers, that is not an abstraction: it is no-show rates, uncompensated care, and clients cycling out of treatment midway through an episode.

Who is exempt — and which exemptions run through your chart#

The statute lists mandatory exemptions. Several are demographic (pregnant or postpartum individuals, American Indians and Alaska Natives, former foster youth under 26, veterans with a total disability rating, people recently released from incarceration). Others are clinical, and those are where your documentation matters:

• Medically frail or otherwise having special medical needs, which the statute defines to include individuals with a substance use disorder, a disabling mental disorder, a physical, intellectual or developmental disability that significantly impairs the ability to perform one or more activities of daily living, or a serious or complex medical condition.
• People participating in a substance use disorder treatment and rehabilitation program.
• Parents and caretakers of a dependent child 13 or younger, or of a person with a disability.
• People already meeting, or exempt from, TANF or SNAP work requirements.

States must also allow short-term hardship exemptions, for example during an inpatient stay or a county-level disaster. States decide how they verify each category, and the law pushes them to use data they already hold — claims, encounter data, other program enrollment — before asking the individual for paperwork. That is good news for clients with steady claims history and bad news for anyone whose record is thin, outdated, or vague.

Why a diagnosis code alone is not enough#

A claim with an F-code tells a state that someone was seen for a behavioral health condition. It does not tell the state that the condition is disabling. For the medically frail category, the operative words are about impairment and function: does the condition significantly limit the person's ability to work, to keep a schedule, to manage daily activities?

Most progress notes do not say. They describe the session — topics, interventions, mood — and assume the reader already knows why the person is in care. That assumption is fine for continuity. It fails the moment someone outside the treatment team needs to decide whether the person meets a functional standard.

Five things a note should carry in 2027#

None of these require a new form. They are habits that make ordinary documentation do double duty as evidence. Most are already expected by payers for medical necessity; H.R.1 simply raises the cost of skipping them.

1. 1A current, specific diagnosis tied to the active treatment plan — not a rule-out carried forward from intake.
2. 2Functional impact in plain language: work, school, self-care, housing, parenting. Name the domain and the observable limitation.
3. 3A standardized measure at a predictable cadence — PHQ-9, GAD-7, DLA-20, or your state's required instrument — so impairment is quantified, not asserted.
4. 4Treatment participation for SUD programs: level of care, attendance, and engagement, so the 'participating in treatment' exemption can be shown, not inferred.
5. 5A plan that explains continued care, including barriers. 'Continue weekly therapy' is a schedule; 'continue weekly therapy because…' is an argument.

Don't turn clinicians into eligibility workers#

The worst response to H.R.1 is a new attestation form for every client at every visit. It adds minutes nobody has, and forms filled out under time pressure become boilerplate — which auditors have long treated as a red flag. A better approach is to build the evidence into the documentation clinicians already produce, and let operations staff assemble it when a state asks.

• Front office: flag expansion-group clients and their redetermination dates at scheduling, so a six-month renewal doesn't arrive as a surprise.
• Clinicians: document function and measures as part of the note. Nothing more.
• Care coordination or eligibility staff: when verification is requested, pull the evidence that already exists — diagnosis history, measure trends, attendance — into a letter the treating clinician reviews and signs.

Where Margent fits — and where it stops#

We built note checks to check notes at the moment of signing, before they become a problem in an audit. For H.R.1 we added a rule pack that flags notes for Medicaid expansion clients that are missing functional impact language or a recent standardized measure. Clinicians see the gap with a suggested fix that cites the session transcript; they accept, edit or dismiss it.

Letters & appeals can draft an exemption support letter from the chart: diagnosis history, measure trend, functional findings and treatment participation, every sentence linked to the note it came from. A clinician reviews and signs it. Margent never makes or submits an eligibility determination — that is the state's job, and the attestation is the clinician's.

What to do this quarter#

• Pull a list of expansion-group clients and estimate how many likely qualify as medically frail or in SUD treatment.
• Read your state's implementation plan and verification approach; note which data sources it will check first.
• Audit 20 recent notes for functional impact language and a dated measure. Count how many would support an exemption on their own.
• Set a measurement cadence (intake, every 30 days or 4 sessions, discharge) if you don't have one.
• Decide who assembles exemption evidence when a request arrives, and who signs it.