CMS requires state Medicaid suspension upon arrest versus termination

Key Takeaways

Effective January 1, 2026, federal law now requires states to suspend, rather than terminate, Medicaid coverage when an individual is incarcerated. This policy change was enacted as part of the FY 2024 Appropriations Act (P.L. 118-47) and reflects a key win from NACo’s advocacy on reforming the Medicaid Inmate Exclusion Policy (MIEP).

Previously, states had discretion to either suspend or terminate Medicaid coverage upon incarceration. While most states opted for suspension, individuals in termination states were required to reapply for Medicaid after release, often resulting in coverage gaps that undermine continuity of care and are associated with higher recidivism rates. Under the new requirement, Medicaid eligibility is paused rather than terminated, allowing for faster reactivation of services upon release and eliminating the need for re-enrollment.

Impact on counties

Counties operate 91 percent of the nation’s local jails, admitting approximately 7.9 million individuals each year. Under the Medicaid Inmate Exclusion Policy, counties must shoulder the full cost of care for incarcerated individuals in local jails who would otherwise be eligible for federal benefits. This places a disproportionate financial burden on county governments and contributes to significant gaps in care for individuals with complex physical and behavioral health needs.

Requiring states to suspend rather than terminate Medicaid coverage helps address these challenges by improving care coordination before, during and after incarceration. While the policy does not eliminate MIEP, it allows individuals to quickly regain coverage upon release, making it easier for counties to connect people to community-based care, including behavioral health and substance use disorder services.

For counties, this change supports smoother reentry transitions and improved continuity of care, reducing the likelihood that individuals miss critical physical, behavioral health or substance use disorder services following release. By eliminating the need for Medicaid re-enrollment and shortening the uninsured period, the policy also helps limit uncompensated healthcare costs that would otherwise be absorbed by county health systems. Enacted through the FY 2024 Appropriations Act, this provision reflects a key success of NACo’s advocacy, and NACo remains engaged with federal partners to support effective implementation of these reforms.