红领巾瓜报

Key Insights from the 2026 MESC Conference and What They Mean for Your Organization 

State Medicaid agencies and partner organizations are facing one of the most consequential periods of operational change in more than a decade. Those challenges were a central focus of the , August 17-20, 2026, in Portland, OR, where state, federal, and industry leaders discussed how technology, data, and operational modernization are becoming essential tools for implementing policy change. 

During the conference, leaders of 红领巾瓜报 (红领巾瓜报) and HealthTech Solutions, an 红领巾瓜报 company, reinforced a consistent theme: We have moved beyond the era when Medicaid enterprise systems modernization simply meant replacing aging technology. Instead, states are building the infrastructure needed to manage continuous policy evolution, support more sophisticated program integrity efforts, adapt to changing eligibility requirements, and provide the financial and operational visibility necessary to navigate an increasingly complex Medicaid environment. That direction is also reflected in recent  that the Centers for Medicare & Medicaid Services (CMS) issued to gather stakeholder input on how to advance a more standardized, interoperable, and cost-effective MES ecosystem. 

What We Learned at MESC 

Modernization Is Becoming an Ongoing Operating Capability 

Medicaid modernization is moving beyond the replacement of legacy systems. States are building the capabilities needed to manage continuous change. That work includes stronger governance through better data and more disciplined implementation practices; clearer ownership for decisions, risks, dependencies, and outcomes; and the development of cross-functional teams. Policy, operations, technology, finance, communications, and program leadership must work together from the beginning. 

What it means for states and partners
Modernization programs need a clear operating model that defines decision rights, measures of success, implementation responsibilities, and long-term support. Partners should help build state capability instead of focusing only on system delivery. 

Modularity Now Means Managing the Connections Between Systems 

Modularity can give states more flexibility, support specialized solutions, and reduce dependence on one large platform. Modularity, however, also creates more connections and business relationships that must be managed. A modular environment involves multiple vendors, systems, interfaces, data flows, release schedules, and support models. Because difficulties can arise when these elements are disconnected, MESC sessions emphasized the need for enterprise integration and coordination. States must manage testing, release planning, architecture, data contracts, vendor handoffs, and incident resolution. 

What it means for states and partners
Modularity requires more than modular procurement. States need an enterprise layer that manages the relationships between components. Partners should understand how their work affects the broader Medicaid ecosystem. 

Federal Requirements Are Shaping the Modernization Agenda 

CMS and other federal requirements continue to influence state priorities. Certification remains important, along with federal reporting, data quality, security, interoperability, and program integrity. The conference also reflected growing pressure to prevent fraud, waste, and abuse earlier in the Medicaid life cycle. States are strengthening provider enrollment, referral intake, payment controls, analytics, and audit preparation. These efforts move program integrity closer to the front door. The goal is to identify risk before it becomes a payment error or an investigation. 

What it means for states and partners
Compliance and program integrity should be part of solution design from the beginning. States and partners should build evidence, controls, testing, and monitoring into normal operations. These activities should not be postponed until certification or an audit is approaching. 

Eligibility Changes Require New Data and Operational Models 

Changes to Medicaid eligibility are creating new demands for states. Workforce and community engagement requirements are one example. States may also need enhanced verification, new exemption processes, shorter response timelines, and stronger outreach. 

These changes extend beyond eligibility systems. They shape how states communicate with members, support contact centers and caseworkers, manage appeals, connect data sources, and help people understand what they need to do to maintain coverage. MESC sessions underscored the value of listening to stakeholders and explored how health information exchange data and other sources could support exemption decisions and reduce preventable coverage loss. 

What this means for states and partners
Eligibility modernization must connect policy to daily operations. States need reliable data and clear workflows. They also need ways to explain changes and track outreach. Partners can translate policy into decision logic, test cases, notices, training, and operational procedures. 

AI Means Governed Support for Real Medicaid Work 

AI was a major topic of discussion at MESC. The strongest examples involved practical work rather than general experimentation. States are exploring AI for policy questions, quality assurance, document review, contact center support, knowledge management, and program integrity. These use cases can reduce administrative burden and help staff manage complex workloads. Conference speakers clarified that AI is no substitute for reliable governance structures. States need reliable content, security controls, privacy protections, human review, workforce training, and performance monitoring. 

What this means for states and partners
AI adoption should begin with a specific business problem. States should define who is accountable for the outcome and how the tool will be monitored. Partners can support use case selection, governance, procurement, testing, implementation, and workforce adoption. 

How 红领巾瓜报 Can Help 

MESC 2026 reinforced the argument that Medicaid modernization is no longer a discrete technology project. States and their partners are responding to federal requirements, modular system complexity, eligibility changes, AI adoption, and heightened program integrity expectations at the same time. 

红领巾瓜报 and HealthTech Solutions help organizations turn that complexity into an actionable modernization strategy. Our teams bring together Medicaid policy expertise, operational experience, technology strategy, procurement support, compliance knowledge, and implementation discipline so clients can make better decisions and execute with confidence. 

We support organizations in assessing current systems and capability gaps, prioritizing technology investments, translating policy into operational and technical requirements, managing vendor selection and procurement, strengthening compliance and program integrity, and adopting AI in ways that are effectively governed, practical, and aligned with Medicaid business needs. 

Contact 红领巾瓜报 experts to get your questions answered. 

State fiscal year (SFY) 2027 budgets provide insights into how states are responding to the Medicaid and Supplemental Nutrition Assistance Program (SNAP) funding and operational changes included in the 2025 budget reconciliation legislation, P.L. 119-21, the Working Families Tax Cut Act (WFTCA). Many of the law鈥檚 most significant changes will phase in, with full implementation set for 2029. Nonetheless, states are already adjusting their budgets, operational infrastructures, eligibility requirements, and financial strategies to address WFTCA鈥檚 new administrative requirements, reductions in federal Medicaid funding, and increased SNAP cost sharing responsibilities, among other reforms.  

In its newly updated report,  (subscriber access required), 红领巾瓜报 Information Services (红领巾瓜报IS), examined state Medicaid agency funding and budget provisions that signal how states are preparing for WFTCA implementation. As of July 31, 2026, all states except South Carolina had enacted their SFY 2027 budgets, and many states that enacted two-year spending plans in 2025 have now approved supplemental budgets. Some states are investing in staffing, eligibility systems, compliance activities, and other infrastructure to maintain coverage and services wherever possible, while others are identifying reductions or alternative funding strategies as they look ahead to more limited federal funding and future budget tradeoffs. 

Following鈥痠s a snapshot of the key trends鈥痑nd state responses to WFTCA policies, which the full report covers in more detail. 

Medicaid and SNAP Policy Changes Shaping State FY 2027 Budgets 

Major WFTCA provisions affecting state budgets include work/community engagement requirements and more frequent eligibility checks for expansion beneficiaries, an increased state share of SNAP administrative costs, and restrictions on provider taxes and state directed payments. 

Medicaid Community Engagement Requirements Drive New State Investments. States that expanded Medicaid eligibility through the Affordable Care Act (ACA) must implement an 80-hour per month community engagement/work requirement for expansion populations by January 1, 2027. These enrollees will also be subject to six-month eligibility reviews. 

In anticipation of significant administrative demands, states allocated funding for more staff, IT enhancements, provider and community education, as well as public education to assist individuals subject to the new requirements. States already had been working to meet this requirement before the Centers for Medicare & Medicaid Services (CMS) released the  on June 1, 2026. They may need to adjust their funding requests and implementation strategies to align with the new federal mandates. Examples of state responses include: 

• 滨濒濒颈苍辞颈蝉听allocated $55 million to the Department of Human Services to hire 450 additional staff and update eligibility determination systems to implement new eligibility and work requirements for Medicaid and SNAP.聽
• 碍别苍迟耻肠办测鈥檚聽biennial budget includes $35 million in SFY 2027 and $11 million in SFY 2028 to implement Medicaid work and community engagement requirements and other related needs.聽
• 惭补颈苍别鈥檚聽supplemental SFY 2025鈥�27 budget includes funding to establish 35 eligibility specialist positions as well as other workers to implement work requirements.聽

States Budget for Higher SNAP Administrative Costs and Error Rate Penalties. States are now responsible for 75% of SNAP administrative costs, up from 50% previously. Beginning in federal fiscal year 2028, the WFTCA imposes a cost sharing requirement on states that have a SNAP payment error rate of more than 6%. In response, many states included funding or budget language to address these new fiscal and administrative responsibilities. Examples include: 

• Arizona聽is allocating $31.8 million for the Department of Economic Security to cover the larger state share of administrative costs, as well as $10.8 million and 88 full-time equivalent (FTE) positions to reduce the SNAP error rate.聽
• 颁补濒颈蹿辞谤苍颈补鈥檚 Department of Social Services聽is set to receive a $30.6 million general fund increase to account for the increase state share of administrative expenses, a nearly $8 million total increase for CalFresh staffing for WFTCA and federal changes and a $4.8 million total increase for enhanced monitoring of CalFresh to meet new error rate requirements.聽
• Florida聽is setting aside $4 million for the Department of Children and Families to procure a vendor to help reduce the SNAP error rate.聽
• Iowa聽included an increase of $8.7 million for the increased state share of SNAP administrative costs.聽
• Applying a slightly different approach to the error rate,聽础濒补产补尘补鈥檚聽budget requires the Department of Human Resources to develop a plan that will modify SNAP benefits or eligibility as necessary to cover any penalty imposed on the state in SFY 2028.聽

States Assess the Impact of Federal Restrictions on Medicaid Financing Tools. The WFTCA freezes current provider tax programs, bars new ones, and requires Medicaid expansion states to phase down the minimum allowable tax rate from 6% to 3.5% by 2032. It also caps state directed payments at 100% of Medicare rates for expansion states and 110% for non-expansion states. Grandfathered payment arrangements will be phased down by 10% annually beginning in 2028. 

While this provision will not fully impact states until the next fiscal year, some states are already alerting policymakers and Medicaid organizations that the change will significantly affect their approach to financing the state share of Medicaid costs. States signaling the challenges ahead include: 

• New York聽reported that its assessment tax on managed care organizations (MCOs) is noncompliant with WFTCA.聽
• 颁补濒颈蹿辞谤苍颈补鈥檚聽MCO tax is also noncompliant and will expire December 31, 2026. The state鈥檚 budget does include an WFTCA-compliant tax that will generate $575 million in SFY 2027, $2.3 billion in SFYs 2028 and 2029, and $1.7 billion in SFY 2030.聽
• 础濒迟丑辞耻驳丑听West Virginia鈥檚聽final budget includes $877 million from Health Care Provider Tax collections to cover medical services and associated administrative costs, this amount is $46.1 million more than was included in Gov. Patrick Morrisey鈥檚 proposed budget. The governor鈥檚 proposed budget highlighted how the state will be able to rely less on funds accrued from this tax because of the WFTCA鈥檚 limits on provider taxes.聽

States Increase Investments in Program Integrity and Fraud Prevention 

Multiple state budgets also account for the federal government鈥檚 crackdown on fraud, waste, and abuse (FWA) in Medicaid and other public benefit programs. Missouri鈥檚 Department of Social Services budget includes $17.9 million for the Missouri Medicaid Audit and Compliance Unit to design, implement, maintain, and operate a Medicaid provider enrollment system; $7 million for a case management, provider enrollment, and fraud detection system; and $6.7 million to expand efforts to eliminate fraud through proactive measures using data analytics. 

Florida allocated $10.8 million total to combat public assistance fraud, including $2 million in nonrecurring state funds for the Department of Financial Services to competitively procure and implement a public assistance fraud software solution to prevent, detect, and investigate SNAP fraud. 

In addition, Rhode Island鈥檚 budget establishes an Office of the Inspector General to combat FWA of public funds; Arizona is increasing staff for its Medicaid Fraud Control Unit by four FTE positions; and Colorado included funds to improve the state鈥檚 provider directory and conduct a pediatric behavioral therapy audit. 

WFTCA Could Reshape Medicaid Financing, Enrollment, and Market Strategy  

The WFTCA will reshape Medicaid financing, eligibility, enrollment, and program operations over the next several years, requiring states, health plans, providers, and other stakeholders to adapt to an evolving policy and market landscape. Although many provisions phase in through 2029, SFY 2027 budgets demonstrate that implementation is already underway. New York, for example, projects annual federal funding for Medicaid and the Essential Plan will decline from $77.5 billion in SFY 2027 to $68.5 billion in SFY 2030鈥攁 nearly $10 billion annual reduction. California estimates federal community engagement requirements could reduce program costs by $357.6 million in SFY 2027 and approximately $9.6 billion through SFY 2029鈥�30. 

红领巾瓜报 Helps Organizations Navigate Medicaid Transformation and WFTCA Implementation 

States and other stakeholders will need to continue to adapt as the full effects of WFTCA and other federal priorities take hold. 红领巾瓜报 (红领巾瓜报) brings the expertise, tools, and insights needed for stakeholders to stay on top of the rapidly changing environment. Contact 红领巾瓜报鈥檚鈥疢edicaid experts鈥痶o discuss how state budget and policy decisions鈥痑ffect your organization鈥檚 strategy, operations, and long-term positioning in鈥痶his evolving鈥痟ealthcare landscape. 

The full report is available to 红领巾瓜报IS subscribers through our Medicaid competitive intelligence, strategy, and transformation tool. 

As part of its ongoing effort to reshape Medicaid policy and oversight, the Centers for Medicare & Medicaid Services (CMS) over the past few months has released a series of guidance documents in 2026 that collectively signal a more structured, fiscally rigorous approach to federal Medicaid funding. These changes will have a considerable impact on state innovation within the program.

In the most recent of these consequential directives, CMS outlines its plan to implement updated budget neutrality requirements for Medicaid Section 1115 demonstrations beginning in 2027.

To understand what this guidance means for states, health plans, and providers, 红领巾瓜报 (红领巾瓜报) senior principal Andrea Maresca caught up with Sara Singleton, Principal at Leavitt Partners, an 红领巾瓜报 Company, and Rob Buchanan, Senior Principal at 红领巾瓜报. Of particular interest was the need for significantly more robust modeling and financing strategies to provide the new prospective actuarial analyses required for approval.

A Shift in Federal Policy Direction

Q: CMS has issued several guidance documents this year, but why and how does the one on Section 1115 budget neutrality stand out?

Sara Singleton: This guidance reflects a broader shift toward increased federal oversight and a more standardized interpretation of budget neutrality. While Section 1115 demonstrations have always been required to be budget neutral in concept, CMS and states have historically relied on methodologies that allowed for flexibility and, in some cases, greater federal spending over time.

What鈥檚 different now is that Congress recently added a requirement that the CMS Chief Actuary certify that demonstrations will not increase federal expenditures relative to what Medicaid would otherwise spend. That requirement, combined with CMS鈥檚 implementing guidance, is driving a more prospective, and in theory, data-driven approach to evaluating demonstrations.

Q: How is the change from reviewing retrospective to prospective spending expected to affect Medicaid programs?

Sara Singleton: Historically, CMS often reviewed budget neutrality retrospectively against what鈥檚 called 鈥渨ithout waiver鈥� spending limits, which means the agency reviewed what spending would have been in the absence of the waiver program. Going forward, CMS is emphasizing prospective certification and signals an expectation that states will provide more rigorous actuarial analysis and activity-level financial modeling.

The implication is that states will need to demonstrate upfront and in much greater detail how each component of their demonstrations affect federal spending. This is a substantive change in expectations for documentation, analytics, and accountability.

Implications for Innovation, Including HRSN Initiatives

Q: Sara, you鈥檝e written previously about the opportunities to address health-related social needs (HRSN) through Medicaid. How does this new guidance intersect with those efforts?

Sara Singleton: The timing is important. Over the past several years, the number of states utilizing 1115 waivers to address HRSNs, such as housing instability, nutrition, and transportation, has significantly increased. Many of these waivers and additional research have proven what we have long known to be true鈥攖hat addressing HRSNs has a clear impact on health outcomes and costs.

The new budget neutrality framework raises the bar for states to demonstrate that new innovations in an 1115 waiver will reduce costs before the waiver can be approved. States will need to show not just that these services are beneficial, but that they also are financially sustainable within the federal budget neutrality test. That鈥檚 a higher evidentiary standard, particularly for newer or more complex interventions.

Q: Does that mean HRSN initiatives are at risk?

Sara Singleton: Not necessarily; however, it does mean states may need to rethink how they structure and justify them.

One key element in the guidance is the distinction between services that are already Medicaid-authorizable and those that are unique to Section 1115 demonstrations. CMS is signaling a preference for using existing authorities where possible. CMS鈥檚 preference and negotiations with states could lead states to shift some HRSN activities into managed care programs, including using in lieu of services, or state plan options.

For services that remain in 1115 demonstrations, the burden will be on states to build a more robust financial and policy case. That expectation could shape which interventions move forward.

Q: Rob, what are you hearing from states as they process this guidance?

Rob Buchanan: States recognize that Section 1115 demonstrations are critical tools鈥攖hey allow flexibility to test new delivery models and address complex population needs. In fact, every state has an 1115 demonstration, each with tailored initiatives that span coverage, benefits and services, workforce investments, and other programs. The pathway to approval and iteration of these programs is becoming more complex.

From a planning perspective, states will need to rethink how they approach the entire life cycle of a demonstration鈥攆rom concept development to modeling, implementation, and evaluation.

Q: Where are the biggest pressure points?

Rob Buchanan: 红领巾瓜报 consultants have identified three key areas.

First is analytics and actuarial capacity. The guidance calls for more rigorous financial projections and certification prior to approval, which means states need stronger data infrastructure and modeling capabilities earlier in the process.

Second is program design and prioritization. Because demonstrations that increase federal spending will not be approved, states may need to narrow their focus, phase in initiatives, or identify offsetting savings within the demonstration.

Third is timing and alignment. CMS has indicated it will begin applying this framework in 2027, even as rulemaking continues. States with renewals or amendments coming up in that window will need to move quickly to align with the new expectations.

Q: How should states begin adapting their strategies?

Rob Buchanan: We鈥檙e advising states to start with a few practical steps.

One is to reassess their current demonstration portfolios. Which components are most essential? Which are most likely to meet the new budget neutrality standard? That prioritization will be critical.

Another is to integrate policy, finance, and operations early. Under this framework, you can鈥檛 develop policy concepts in isolation. You need to understand the financial implications from the outset.

Finally, states should think about implementation pathways. For example, if certain services can be authorized through managed care or state plan options, that may provide more flexibility than relying solely on Section 1115 authority.

Q: Does this change how states should think about partnerships?

Rob Buchanan: Yes, the level of coordination required across Medicaid agencies, actuaries, managed care plans, providers, and community organizations is increasing.

States will need strong partnerships to both design workable demonstrations and execute them effectively. That includes building connections with community-based organizations, particularly for initiatives that address HRSNs, where implementation relies heavily on local networks.

Q: As we look toward 2027 implementation, what should states and other Medicaid-focused organizations be focused on now?

Rob Buchanan: The most important thing is to recognize that this is not a distant policy change. It鈥檚 an immediate planning issue and states should already be assessing how the new framework applies to their program.

Compliance with this guidance requires state Medicaid programs to have detailed data  鈥� specifically actuarial analyses that have a clear methodology and assumptions and documentation demonstrating the federal fiscal impact of each demonstration component. States must provide sufficient information for CMS鈥檚 Chief Actuary to evaluate and certify budget neutrality. Plans and providers should also be engaged because these changes will influence program design, reimbursement approaches, and operational expectations.

Sara Singleton: At a broader level, stakeholders should expect additional guidance from CMS. This is one piece of a larger policy agenda, and CMS plans to provide additional clarification through the federal rulemaking process as well as technical assistance to states.

红领巾瓜报, including 红领巾瓜报 companies Wakely and Leavitt Partners,聽is actively helping states, health plans, providers, and other stakeholders assess the implications of CMS’s proposed budget neutrality framework and prepare for upcoming section 1115 renewals and amendments, as well as other changes due to recent guidance on community engagement requirements, state directed payments, and program integrity. 红领巾瓜报 can support strategic assessments, renewal planning, demonstration redesign, financial modeling, actuarial coordination, federal negotiations, and implementation planning. Connect with 红领巾瓜报 to learn how we can support your organization in navigating the next phase of Medicaid Section 1115 demonstration and policy.

You can find more insights on the impact of federal Medicaid policy changes in, CMS Proposes New Budget Neutrality Framework for Medicaid Section 1115 Demonstrations and register for the next edition of 红领巾瓜报鈥檚 Summer Webinar Series: Understanding Work and Community Engagement Requirements and New Section 1115 Guidance