Medi-Cal's January 1 work requirement has an exemption for people with serious mental illness or addiction

The federal work requirement for Medi-Cal, California's Medicaid program, starts January 1, 2027, but many members with mental illness or addiction may not have to meet it. Federal law exempts members who are "medically frail," a category that names people "with a substance use disorder" and people "with a disabling mental disorder," the statute says. A separate provision exempts anyone taking part in a drug or alcohol treatment program.

The scope of that exemption has been contested since June. That month the Centers for Medicare & Medicaid Services (CMS), the federal agency that runs Medicaid, issued a rule saying a condition counted only if it "significantly impairs" a person's ability to comply. A coalition of 24 attorneys general and two governors, co-led by California, Massachusetts and New Jersey, sued over it. On October 29, a federal judge in Boston struck that condition. CMS says it will appeal, and the January 1 start is unchanged.

The work requirement covers adults 19 to 64 in Medi-Cal's expansion group, the adults who became eligible when California expanded Medicaid under the Affordable Care Act. That group had 4,561,673 members in June, a third of Medi-Cal's 13,675,721, according to the latest Fast Facts from the state Department of Health Care Services (DHCS). Our date-by-date guide covers every Medi-Cal change in the federal law, Public Law 119-21. This piece covers the rules that matter most to people living with mental illness or addiction.

Medi-Cal work requirements ask for 80 hours or $580 a month:

Under the federal law, an adult in the expansion group meets the work requirement for a month by doing at least one of these:

• Working at least 80 hours.
• Doing at least 80 hours of community service.
• Taking part in a work program for at least 80 hours.
• Being enrolled in school at least half-time.
• Combining those activities to reach 80 hours.
• Earning at least the federal minimum wage times 80 hours, which is $580 at $7.25 an hour. Seasonal workers can average it over six months.

DHCS's member page, updated November 6, lists the options in plain terms, such as "Work at a job and earn at least $580 a month." A member letter attached to DHCS's September 11 instructions to counties says members keep Medi-Cal if they met one of those tests "in any of the past months since your last renewal."

The "medically frail" exemption names substance use disorders and disabling mental disorders:

The law lists people who don't have to meet the requirement while their situation applies. It calls them "specified excluded individuals," and they include people who are pregnant or postpartum; parents and caregivers of children 13 and under or of a disabled person; American Indians and Alaska Natives; veterans rated totally disabled; people in jail; and people meeting the work rules of CalFresh or CalWORKs, California's food aid and cash aid programs. Two of these categories cover mental health and addiction, and a third provision covers psychiatric hospital stays.

The medically frail category. The statute covers anyone who is "medically frail or otherwise has special medical needs," as the U.S. health and human services secretary defines those terms. Its list includes people who are blind or disabled, people "with a substance use disorder," people "with a disabling mental disorder," people with a disability that significantly impairs daily living and people "with a serious or complex medical condition." The words "significantly impairs" in that list apply only to the disability category. They aren't the CMS condition the court struck.

People in treatment. A separate provision exempts anyone "participating in a drug addiction or alcoholic treatment and rehabilitation program." CMS treats it as distinct from the medically frail category, so a person with a substance use disorder can qualify as medically frail without being in treatment.

Psychiatric hospital stays. The law also lets states grant a short-term hardship exception for a month in which someone receives "inpatient psychiatric hospital services" or other inpatient, nursing or similar care. DHCS's member letter lists "You got care in a hospital, nursing facility, or psychiatric facility" among the reasons a member can give.

Five Medi-Cal work requirement exemptions involve mental illness or addiction:

CMS's "significantly impairs" test was struck down on October 29:

CMS's interim final rule, published June 3 and in force since July 31, added a condition the statute does not contain. A person counted as medically frail only if their "physical, mental, or other behavioral health condition significantly impairs the individual's ability to comply with the community engagement requirement." Community engagement is the federal name for the work requirement.

"…significantly impairs the individual's ability to comply with the community engagement requirement."
—CMS's June 3, 2026 rule, in the words the court struck

The states argued that CMS had narrowed what Congress wrote. Judge Richard G. Stearns of the U.S. District Court for the District of Massachusetts agreed. In his October 29 memorandum and order in Commonwealth of Massachusetts v. Oz, he held that the "significantly impairs" condition was beyond CMS's authority and that the words "can easily be excised" from the rule. He granted a permanent injunction against enforcing that part of the rule.

The states did not win every point.

• Upheld: two limits on how members prove they are medically frail. One limits the billing and treatment records a state checks to the past 12 months. The other lets a member's own sworn statement count only once per period of enrollment, starting January 1, 2028.
• A grace period: the court gave the states "a 6-month stay of enforcement" on decisions about who is medically frail, to "accommodate any errors or delays which may arise given the short timeline." The stay shields the states from CMS enforcement over those decisions. It doesn't delay the requirement for members.
• The start date: a footnote says the stay "has no impact on the Congressionally mandated January 1, 2027, deadline."

CMS Administrator Mehmet Oz said on November 3 that the agency will appeal the ruling, Health Management Associates reported. Unless a higher court pauses or reverses it, the October 29 order stands.

CMS's rule still excludes people in "stable recovery" of five years or more:

Two parts of CMS's rule bear on mental health and addiction. The court's opinion does not address them, so they stand as written.

Recovery. The rule counts someone "with a substance use disorder" as medically frail, including people in early or sustained recovery, but "excluding an individual in stable recovery (which means, an individual who is in recovery for 5 or more years)." CMS's explanation is that the risk of recurrence after five years "is approximately the same as the general population." The rule also says states must have a way for people to identify themselves under the addiction exemption, "including for individuals who have a relapse."

Mental illness. CMS declined to define "disabling mental disorder" in regulation, saying a single standard would be "incredibly difficult" to set. It pointed states to the federal Interdepartmental Serious Mental Illness Coordinating Committee and to the DSM-5 and ICD-10, the diagnostic manuals clinicians use. It named conditions it considered reasonable to count when they are disabling: schizophrenia, schizotypal disorder, delusional disorder and other non-mood psychotic disorders; moderate or severe bipolar disorder; major depressive disorder; and panic disorder. A mental disorder that isn't disabling doesn't qualify.

Each state must also keep a list of diagnoses that qualify a person as medically frail. The rule says the list must be "auditable, justifiable" and revised regularly, and that people whose condition isn't on it must have a way to request an exemption. DHCS had not published California's list in any document we reviewed as of November 7.

Federal law tells Medi-Cal to check its own records before asking members for proof:

The law tells states to verify compliance and exemptions with "reliable information available to the State," such as payroll data and Medi-Cal's own billing and treatment records, "without requiring, where possible," members to send more documents. DHCS told its Voices and Vision Council, an advisory group, in December 2025 that it aims to "automate exemption verification" through data matching, according to the meeting minutes. For someone whose mental health or addiction care is already billed to Medi-Cal, those records may be enough for the state to confirm the exemption.

If the state can't confirm it, the law sets three steps:

1. The member gets a written notice of noncompliance explaining how to show that they met the requirement or are exempt.
2. The member has 30 calendar days from receiving the notice to respond, and coverage continues during those 30 days.
3. If the member shows neither, coverage ends no later than the end of the month following the month in which the 30 days end. Before that, the state must check whether the person qualifies for Medi-Cal on another basis or for other subsidized coverage, and the person gets written notice and the right to a fair hearing.

The letter's list of exemptions includes "Have a serious mental health condition that keeps you from meeting this rule" and "Overuse or misuse of drugs or alcohol, are in treatment, or have been asked to attend treatment." That mental health wording dates from September, before the court struck CMS's "significantly impairs" condition, and it describes a similar test.

Losing Medi-Cal over the work requirement also blocks federal subsidies for Covered California plans:

A provision of the same law means losing Medi-Cal can also cost a person help with other insurance. Someone who would have been eligible for Medicaid "but for a failure to meet" the work requirement is treated as eligible for that coverage for federal tax purposes, the statute says. Federal premium tax credits are only for people without access to coverage such as Medicaid, so a person dropped this way can't get those credits for a plan from Covered California, the state's health insurance marketplace.

Becerra has promised a Day One executive order to keep Medi-Cal members covered:

AP and NBC News projected Xavier Becerra the winner of the November 3 governor's race, and he takes office on January 4, 2027, three days after the work requirement begins. His health-care plan says "the Trump administration is targeting Medi-Cal." It promises a Day One executive order to "maintain coverage continuity for every Californian affected by federal cuts or Medi-Cal rollbacks." It also pledges to "modernize Medi-Cal's eligibility infrastructure with automated renewals," aimed at cases where "eligible enrollees are dropped due to paperwork errors."

The plan doesn't say what the order would contain. Under the federal law, the state decides the parts this piece has covered: the records it checks before writing to members, the list of diagnoses that qualify a person as medically frail and how fast it handles a member's exemption request.

Becerra's separate pledges on Proposition 1, the 2024 mental health bond, are in our analysis of its treatment beds.

Medi-Cal's work requirement starts January 1, and many people with mental illness or addiction can qualify for an exemption:

For a Medi-Cal member with a disabling mental disorder or a substance use disorder, the federal law offers a route to an exemption. The court has removed CMS's extra "significantly impairs" condition for now, and DHCS's member letter names both mental health and addiction, though its mental health wording predates the ruling. Four things are still unsettled: the outcome of CMS's appeal, the list of diagnoses DHCS will use, how DHCS treats people in long-term recovery under CMS's five-year cutoff and what Becerra's Day One order will say. We will update this guide as each is settled.