The Medicaid Reckoning for Crisis Care: What HR1 and the New 1115 Waiver Rules Mean for States

On July 4, 2025, President Trump signed HR1 — the “One Big Beautiful Bill Act” — into law, triggering the largest reduction in Medicaid funding in the program’s 60-year history.  For states, this is the front edge of a broader Medicaid crisis care funding reckoning. The Congressional Budget Office projects that somewhere between 11 and 17 million Americans will lose coverage over the next decade. At virtually the same moment, CMS issued SMD #26-003, a sweeping new regulatory letter that raises the evidentiary bar states must clear to renew the 1115 demonstration waivers on which most of their crisis systems depend.

The burden these two developments create falls directly on states — and it is substantial. More people in crisis, less coverage to pay for their care, and new requirements to prove with actuarial precision that the programs serving them are worth keeping.

There are no off-the-shelf technology solutions to policy adjustments of this magnitude. But the potential for crisis care technology to fuel a more integrated behavioral health data infrastructure is real and warrants considerable discussion. Working alongside states and technology vendors, the crisis care field can develop approaches that reduce procedural coverage losses, strengthen data and communication capabilities, and generate outcome evidence that keeps crisis programs funded through health insurance coverage rather than relying on state, local, or grant funding to sustain them.

This blog doesn’t offer ready-made or stand-alone solutions. It offers a framework for the conversation our field needs to have about what technology and data platforms could make possible, and how we can address these major policy challenges together to ensure that more people in crisis continue to get the care they need.

What HR1 Will Do — and Where the Pain Is Likely to Land

Before we can explore what technology, data, and new protocols for utilizing them could potentially do to help, we need to be clear about what’s coming. The law’s Medicaid provisions roll out over several years, but the cumulative weight is significant.

HR1 contains four provisions that will directly affect Medicaid enrollment and, by extension, crisis system demand:

Work requirements must be implemented by December 31, 2026, requiring Medicaid expansion adults to document 80 hours of monthly work or community service, or lose coverage. 

Semi-annual redeterminations, beginning January 1, 2027, replace the current annual eligibility review cycle, effectively doubling the administrative burden on both states and enrollees — and increasing the likelihood that eligible people lose coverage due to paperwork failures rather than actual ineligibility.  

Strict caps on provider taxes will reduce states’ ability to use provider tax arrangements to generate the state match required to draw down federal Medicaid funds — a financing mechanism that many states have relied on to sustain behavioral health services, including crisis programs. The Act imposes new ceilings on the “hold harmless” threshold in Medicaid expansion states, with the safe harbor level decreasing annually from 6 percent to 3.5 percent between fiscal years 2028 and 2034.

Immigrant eligibility restrictions take effect October 1, 2026, narrowing coverage for refugees, asylees, and other groups previously eligible, many of whom carry significant trauma histories and behavioral health needs. HR1 also imposes a 10% FMAP penalty (reducing the federal match from 90% to 80%) on states that cover undocumented individuals.

Here’s what we know from the evidence: roughly one-third of the Medicaid expansion population has a diagnosable mental health or substance use disorder. These individuals aren’t marginal users of the behavioral health system — they’re often the highest-need people in it. When their coverage disappears, they don’t disappear. The question is where they show up next, and whether the crisis care system is ready.

The New 1115 Waiver Budget Neutrality Rules (SMD #26-003)

HR1 isn’t the only document reshaping the Medicaid landscape right now. On June 11, 2026, CMS issued State Medicaid Director Letter SMD #26-003, establishing new budget neutrality requirements for Section 1115 Medicaid demonstration waivers, effective January 1, 2027.

For readers unfamiliar with 1115 waivers, these are the primary vehicle through which states have funded behavioral health innovation over the past decade. Much of what states would call their “crisis system” — mobile crisis programs, crisis stabilization units, psychiatric inpatient care, and pre-release services for people leaving incarceration — has been built, at least in part, on 1115 waiver authority.

The new CMS letter changes the rules for how states justify those waivers. Beginning January 1, 2027, every 1115 demonstration project must be certified by the CMS Chief Actuary as budget neutral before it can be approved or renewed — using rigorous actuarial analysis that CMS’s own letter acknowledges is significantly more demanding than what states have been doing. States that previously generated “savings credits” to fund behavioral health innovations will find those credits substantially reduced or eliminated under the new methodology.

Here’s the implication that should be tagged for state behavioral health and Medicaid directors: according to a March 2026 Health Affairs analysis of KFF data, most current 1115 waivers will expire between 2026 and 2029. For states whose crisis system infrastructure sits within those waivers, renewals must now clear the Chief Actuary’s bar. It’s also worth noting that states don’t face the new rules simply by the passage of time — the new requirements apply at renewal, or earlier if a state seeks to amend an existing waiver. Any amendment submitted on or after January 1, 2027, triggers the new budget neutrality requirements immediately, and in some cases requires the Chief Actuary to certify the entire demonstration, not just the amended piece. States that want to expand or modify their crisis programs mid-period are not insulated by their current expiration date.

Clearing that bar requires states to demonstrate, with actuarially defensible data, that their crisis programs reduce net federal Medicaid expenditures through avoided hospitalizations, reduced ED utilization, and lower long-term costs. Commissioners will be expected to serve more uninsured individuals while simultaneously defending every dollar of crisis funding with actuarial evidence they may not currently possess.

Does your state have the data collection and analytical infrastructure to persuasively answer these questions today? This is a data requirement going forward with significant implications and opportunities for technology platforms to meet this need for states looking to maintain their federal Medicaid funding contributions to support crisis care.

Here are three pertinent questions for every State Medicaid Director:

1. When does our next 1115 renewal occur?
2. Can we currently demonstrate the crisis savings actuarially?
3. Can our crisis platform track downstream outcomes?

The CMS letter contains one piece of good news worth noting — albeit with caveats. IMD expenditures are classified as MAPS, meaning Medicaid payments for psychiatric inpatient care for SUD, SMI, and SED are treated as budget-neutral by definition,

In short, the bed is protected. The system built around keeping people out of it — or moving them through it efficiently — now must prove its worth.

Six Technology-Related Questions the Crisis Care Field Could Be Asking to Help Address These Policy Challenges

As noted previously, most current crisis technology platforms and state data warehouses have not yet been designed to address the procedural adjustments that HR1 and the new 1115 rules will create. However, to some degree, many crisis technology platforms have been designed to coordinate care, track populations, navigate systems, and measure outcomes, positioning them as essential tools for managing Medicaid eligibility outreach and enrollment, as well as for providing the required data analytics and reporting to Medicaid authorities. However, fully realizing the potential roles of these tools will require states and technology partners to contemplate some genuinely challenging questions.

1. How are crisis platforms uniquely positioned to serve as real-time eligibility screening points?

Every call to 988, every mobile crisis deployment, every visit to a crisis stabilization unit is a point of contact with someone who may have just lost — or is about to lose — their Medicaid coverage. The question worth asking is how states can leverage crisis care platforms to integrate real-time eligibility screening into those contact workflows — flagging coverage status and triggering a navigation pathway in the moment, rather than leaving it to downstream providers to discover weeks later.

This is technically feasible. Eligibility verification tools exist. The harder questions are operational and political: Which entity owns that workflow? How does it interact with state eligibility systems? What does a “warm handoff to benefits navigation” look like at 2 a.m. on a crisis line? These are questions the field hasn’t fully worked through, and they’re worth working through now.

2. How can states automate outreach to help catch people before coverage lapses?

Under HR1’s semi-annual redetermination requirement, millions of people will receive notices of potential disenrollment — and many won’t respond, not because they’re ineligible, but because the notices are confusing, sent to outdated addresses, or arrive during periods of instability. We’ve seen this pattern before; it’s well-documented during the Medicaid unwinding.

Crisis care platforms that maintain ongoing relationships with high-need populations — people with recent crisis contacts, frequent ED utilizers, individuals with known behavioral health histories — could theoretically support proactive re-engagement campaigns before coverage lapses. Text-based outreach, automated check-ins, peer specialist follow-up — these are tools that exist in various forms across the crisis care technology landscape.

Could they be deployed at the scale and speed that HR1’s implementation timeline demands? Could they be integrated with state eligibility systems in ways that are both technically feasible and legally permissible? What would it take to make that real, and how would it be funded?

3. What does a genuine warm handoff to benefits navigation look like from a crisis context?

When someone losing Medicaid calls 988 in distress, or when a mobile crisis team encounters an uninsured person in the field, what happens next? In most states today, the answer is: not much, at least not in any systematic way. The acute crisis gets addressed. The benefits question gets deferred, referred, or lost. This approach often results in default to billing the payer of last resort for uninsured individuals – the state’s general fund or local taxpayer funding.

Is there a model in which crisis platforms serve as genuine bridges to Medicaid re-enrollment or alternative coverage — embedding benefits-eligibility tools into counselor workflows, creating structured handoff protocols to navigators, and tracking whether the coverage issue was resolved? The crisis system’s follow-up capacity is a natural vehicle for exactly this kind of post-crisis navigation, capturing not only Medicaid coverage status but data related to outcomes — lowered risk and distress, connection to lower-cost community services, and more. But in many states, follow-up infrastructure is underdeveloped and underfunded.

HR1 makes the case for investing in it more urgent. A key operational feature of the June 1, 2026, CMS Interim Final Rule (IFC) implementing H.R. 1 work requirements is that certain exemptions—especially noncategorical or time-limited (i.e., “voluntary” or situational) exemptions—must be initiated by the beneficiary rather than automatically applied by the state. This creates the need for a structured, timely system to capture the individual’s request for exemption and to demonstrate qualification for that exemption if the state’s plan can be triggered by engagement with the crisis system.

The question is whether that case can be made persuasively enough — and soon enough — to drive real change before the coverage losses grow.

4. As capacity shrinks, how can technology help states optimize what remains?

HR1 will accelerate closures of behavioral health facilities that depend on Medicaid reimbursement. Fewer beds, fewer programs, more demand — this is the probable math. The question isn’t whether capacity will contract in some states; it’s whether technology can help what remains work more efficiently if these known HR1-related risks to losing federal Medicaid funding contributions are not significantly mitigated for individuals requiring these services.

Real-time bed registries — a technology that exists but remains unevenly adopted nationally — become more valuable, not less, when capacity is constrained. A platform that shows in real time which crisis receiving facilities have open beds, which mobile crisis teams are available, and which peer respite programs have capacity can prevent unnecessary ED boarding and help ensure that limited resources reach people with the greatest need.

What would it take to get every state to that baseline? And in states that already have it, how could that infrastructure be extended to serve as a navigation tool for newly uninsured individuals seeking care?

5. Do states have the data infrastructure to know what’s happening?

This may be the most fundamental question of all — and it’s now urgent for two distinct reasons.

First, as HR1’s coverage losses materialize, states need to see the impact on their crisis systems in real time, rather than piecing together the picture months later from claims data, criminal justice records, and hospital ED reports. Crisis platforms that track who is being served, what their coverage status is, what services they received, and what happened next are accountability tools — the infrastructure states will need to document the human cost of these policy changes and make the case for restoring resources.

Second, and less visibly, states facing 1115 waiver renewals under the new CMS budget neutrality rules need outcome data that meets an actuarial standard. Proving to the CMS Chief Actuary that a community crisis stabilization program saves money — through reduced hospitalizations, fewer ED visits, and avoided inpatient days — requires longitudinal, encounter-level data that many states simply haven’t been systematically collecting. Showing that a mobile crisis team’s engagement not only averted a more costly ED visit or inpatient admission, but also required some evidence of alternative outcomes for an individual served by the team (e.g., reduced risk and emotional distress) and/or their successful connection to less expensive community treatment and support resources.

A crisis platform that documents not just what services were provided but what happened downstream is no longer just operationally useful. It may be the difference between a state’s crisis waiver being renewed or lapsing entirely.

At the 2025 NASMHPD meeting, NRI released 2024 survey data from states showing that far less than half reported having data showing any client/patient outcomes beyond their mobile crisis team visits or discharge from crisis receiving facilities. Even for those who were able to report something about “what happened” from a crisis encounter, they were vague about outcomes, noting either what didn’t happen (no law enforcement encounter or trip to the ED) or what needed to happen (more intensive or outpatient care). With the new 1115 waiver rules, states will also need to be more explicit about documenting what happened to the person served, such as reporting an individual’s crisis stabilization (less risk, less distress, etc.) and/or their successful engagement with ongoing community care (attending appointments, reporting satisfaction with resources they were referred to, etc.).  These kinds of data involve follow-up contacts with the individuals who have been served and/or information from a receiving provider facilitating care for the individual, effectively “closing the loop” about what happened with everyone’s crisis care episode. 

6. How can your state leverage crisis care technology to help make the actuarial case for your 1115 waivers?

This question flows directly from the new CMS letter, and it’s one the crisis care field hasn’t yet had to ask. Under the old 1115 budget neutrality framework, states generated savings credits through relatively blunt accounting. Under the new framework, the CMS Chief Actuary requires rigorous, prospective analysis — actuarial, economic, or statistical — of the specific cost reductions achieved by each demonstration activity.

For a state seeking to renew 1115 authority for a mobile crisis program, that means quantifying how many ED visits were diverted. What was the cost differential? How many hospitalizations were avoided? Over what time horizon do the savings materialize? These are questions that a well-designed, multi-modal crisis platform — one that captures encounter data within and across crisis programs, tracks follow-up contacts, and links to downstream utilization — is uniquely positioned to help answer.

Generally, it’s worth noting the importance of appropriate applications of AI in crisis care technologies to address the challenges posed by HR1 and the new 1115 waiver rules. AI-assisted documentation, outreach automation, predictive identification of individuals at risk of procedural disenrollment, identification of high-utilizers of psychiatric hospitals and emergency departments, and advanced analytics may significantly reduce the workforce burden states will face implementing these requirements.

Could technology partners serve not just as platform vendors but as analytical partners, helping states structure the data and methodology needed to clear the Chief Actuary’s bar? What would that kind of partnership look like in practice? And are the states with the most at stake — those with expiring waivers and limited internal analytical capacity — even aware yet of how dramatically the rules have changed?

An Invitation for Moving Forward

The authors of this piece — Recovery Innovations and Behavioral Health Link — bring complementary and, we think, timely expertise to the challenges described here. RI has spent years working with crisis systems on the hard questions of design, funding, and data. BHL has built a technology infrastructure that operates at the center of crisis care coordination across multiple states. We are writing together because we believe this moment calls for exactly that kind of partnership — between system expertise and technology capability.

What we haven’t seen before, in either of our organizations’ collective experience, is a policy convergence like this one: enrollment losses of historic scale arriving at the same moment the waiver framework that funds crisis innovation is being fundamentally restructured. States are facing a burden that is real, urgent, and in many cases not yet fully visible to the people who will be most affected by it.

Technology won’t resolve that burden. But applied thoughtfully — in genuine partnership with states and grounded in real expertise on how crisis systems work — it can help carry it forward. If you’re a state behavioral health or Medicaid leader trying to make sense of what HR1 and SMD #26-003 mean for your system, RI and BHL would genuinely welcome that conversation.