New CMS Guidance Encourages State Demonstrations to Improve Transitions into the Community for Individuals Released After Incarceration

On April 17, the Center for Medicare and Medicaid Services (CMS), issued new guidance sharing a new opportunity for states interested in improving transitions from state incarceration to the community. The grotesque racial inequities in justice-involved populations, combined with abrupt transitions back into community settings without health supports after incarceration, lead to poor post-release health outcomes and more disparities. This guidance, which enables targeted pre-release coverage, is a major announcement from CMS and important step forward in improving reentry transition problems.


States and localities entirely fund health care in state and local prisons, jails, and youth correctional facilities, but the care provided is often substandard. Under Medicaid’s “inmate exclusion” policy, Medicaid federal funding is not generally available to states for services in these state and local correctional facilities. Some believe this exclusion should be dismantled to allow Medicaid in and improve equity and access to care in state and local facilities, while others argue that this would be a cost-shift from states onto the federal government and potentially worsen disparities because states could get health care financed by locking up more people.

In any case, everyone agrees that the current system leaves Medicaid to “pick up the pieces” when individuals are returned to the community after incarceration, often with uncontrolled health conditions, including substance use disorders, and often leading to bad health outcomes, such as overdoses. CMS and policy experts have long been interested in improving the outcomes relating to transitions back to the community. In 2016, CMS issued guidance encouraging states to “suspend” Medicaid eligibility (the equivalent of pressing pause) when individuals enter detention instead of terminating their enrollment, to make it easier to re-start enrollment upon release.

In 2018, Congress passed the SUPPORT Act, which included a requirement for CMS to issue new guidance (the subject of this blog and discussed in detail below) to states on improving transitions, and seek recommendations from an expert stakeholder panel in developing the new guidance. The panel sent its official report to Congress last December and CMS references it throughout the guidance. In January, prior to issuing the new guidance, CMS issued an approval of a pre-release coverage demonstration (amendment) in California; the proposal was reviewed by CMS at the same time the guidance was being finalized, and is thus unsurprisingly generally consistent with the guidance. CMS is also currently reviewing requests for pre-release waivers from about a dozen additional states, so more state pre-release demonstrations will likely be approved soon.

In parallel to the new guidance and as my colleagues discussed, Congress set out additional requirements for justice-involved youth in the Consolidated Appropriations Act (CAA) signed by President Biden at the end of 2022. These protections are independent of the new guidance and do not require section 1115 authority – they are requirements on states. Per the CAA, starting in 2025 state Medicaid and CHIP programs will be required to offer certain EPSDT and case management services (with federal funding available) as early as 30 days prior to release and during the transition back to the community for justice involved youth, and states will also have the option of providing services (again with federal funding available) during an initial period pending disposition of charges. While these requirements and opportunities are effective in 2025, the opportunities through the new guidance are effective immediately.

CMS’s New Guidance

The new guidance allows states to request targeted coverage demonstrations in the final 90 days of incarceration for individuals in state prisons, jails, or youth correctional facilities. The SUPPORT Act only invited CMS to issue demonstrations in the last 30 days of detention, but CMS will allow states to do narrow pre-release demonstrations for 30 days or broader demonstrations testing pre-release in combination with other policies for as long as 90 days.

States can (but are not required to) target the demonstrations to individuals with specific chronic health conditions, such as a substance use disorder (SUD) or HIV, but individuals must be otherwise eligible for Medicaid. This presents a particular problem in non-expansion states, where many inmates may not be categorically eligible for Medicaid. In addition, if states use eligibility targeting criteria based on health conditions, it will be a major challenge for CMS to ensure that states actually enroll the large populations of prisoners who are undiagnosed.

CMS also provides states with some flexibility as to the services covered. States are required to include three services: case management, SUD services, and a 30-day supply of medications upon release. The guidance provides some important additional details about the requirements for these services. For example, for case management, states must develop a care plan and it is not sufficient for states to merely provide individuals with pre-release referrals—they must provide warm hand-offs to post-release providers and social services. States can include additional services in their demonstration if they are connected to additional demonstration objectives.

Limiting the demonstrations to the final 90 days of detention and limiting the target populations and services greatly reduces the risk that the demonstrations will simply be cost-shifts onto the federal government. CMS goes even further through two more requirements. First, CMS explicitly says that the pre-release demonstrations should not supplant existing services or be intended to cost-shift. Second, CMS requires every state demonstration to have a reinvestment plan. This is a critical safeguard requiring states to reinvest any state savings into improving prison care or investing in community-based services that might help keep people out of prison in the first place.

The guidance describes a number of obligations on states to pursue these demonstrations. Some are specific to pre-release demonstrations and some are longstanding requirements for all 1115 demonstrations. CMS will require states to have implementation plans, including the reinvestment plan, as well as evaluation designs and monitoring plans, and states will be required to issue multiple types of periodic reports on the progress and results of their demonstration. Of course, states will also be required to follow the required section 1115 transparency process to request a demonstration! States interested in the demonstrations also must “suspend” eligibility for inmates, as discussed earlier, though they may be allowed up to two years to implement the suspension policy (note, the SUPPORT Act already requires suspension to be used for youth in detention).

CMS’s guidance also outlines a number of ways that states can draw enhanced Medicaid matching funds for costs related to designing and implementing new pre-release demonstrations.

Challenges for Implementation 

CMS will need to address several additional issues to make these demonstration work well in practice. First, CMS will need to ensure that states can operationalize Medicaid enrollment processes in carceral settings. Though the guidance commands states to do this, CMS may be underestimating the challenges in asking understaffed prison caseworker systems to help the population apply and enroll in coverage, including obtaining the medical confirmations needed to meet the health targeting criteria (if applicable).

Second, there will be major challenges related to states and/or their managed care plans establishing in-prison provider networks. In many cases, prisons have their own staff who are currently “the only game in town” – and it is unclear what providers the states will use and how. Telehealth may be a major asset for provider capacity, but this too will raise questions. In the California approval, CMS approved a waiver for California to simply exempt prison-based providers from signing up as Medicaid providers per federal standards. This still may not solve the provider network problem, and more importantly, it raises major program integrity concerns for Medicaid to have large payments going to unvetted prison providers and companies. (The new guidance doesn’t say these waivers will be the norm, but suggests that states may be able to set their own standards for provider participation.)

Third, regardless of how the state stands up prison provider networks, there will be major data transfer and coordination problems. There will need to be communication between state prison providers in prison, Medicaid pre-release providers in prison, and Medicaid community providers. For example, Medicaid pre-release case management in prison may need to rely on state prison staff health records. Will these be shared? If so, how? The guidance suggests that states will need to build the coordination capacity, but it may prove slow and challenging (and expensive) to align prison and Medicaid health record systems.

Closing Thoughts

CMS’s guidance is taking us in the right direction—improving the transition back to communities is a no-brainer. These demonstrations could meaningfully improve transitions out of state carceral settings without creating problematic incentives for states to put more people in facilities to capture federal dollars. And their design makes it unlikely they will become a cost-shifting strategy for states. This has great potential to improve post-release health outcomes and equity, and improve the long-term reintegration of justice involved populations. The guidance may also lead to some improvements in key prison services. For example, medication assisted treatment, a critical SUD treatment modality, is dramatically underutilized in prisons, and this policy might help expand its availability in prisons. Ultimately, however, it may take some time and effort to effectively integrate Medicaid processes into the pre-release setting and CMS will need to faithfully maintain oversight over Medicaid processes and providers. CMS will also need to require states to comprehensively produce data and evaluate outcomes for us to figure out how to make this policy work—as should always be the case for section 1115 demonstrations.

Leonardo Cuello is a Research Professor at the Georgetown University McCourt School of Public Policy’s Center for Children and Families.