The PERM policy vacuum is narrower than it looked a few weeks ago.
That is an important correction.
There is now organized PERM-specific opposition to the Medicaid improper-payment changes in Public Law 119-21. The National Health Law Program has published a detailed critique arguing that the new framework could expose states to significant financial liability and urging states to reduce administrative complexity that can produce documentation and eligibility errors.
Congress is also not standing still on Medicaid program integrity. On September 29, House Energy and Commerce Republicans introduced a 14-bill package focused on fraud, data analytics, Recovery Audit Contractors, fraud-risk assessments, provider screening, financial accountability, recovery incentives, and stronger state and federal oversight.
Those developments matter. They also make the unanswered question more precise.
Where is the federal policy bridge between stronger Medicaid integrity expectations and the new fiscal consequences states may face under Section 71106?
PERM Insights & Perspectives | The gap is alignment
Opposition Is Not The Same As Relief
Section 71106 applies beginning in federal fiscal year 2030. It amends Section 1903(u) of the Social Security Act by restricting waiver authority and expanding the statutory treatment of erroneous excess payments, including payments for which insufficient information is available to confirm eligibility.
The National Health Law Program is explicitly challenging that framework. Its September analysis argues that the changes could place substantial pressure on state Medicaid budgets and emphasizes that PERM improper payments are not synonymous with fraud. It also recommends state implementation choices intended to reduce administrative burden and future exposure.
That is meaningful PERM-specific opposition.
But opposition, mitigation, and statutory relief are three different things.
An advocacy organization can argue that the framework is too punitive. A state can simplify workflows, improve evidence retention, strengthen quality review, reduce documentation failures, and lower its error rate. Neither action changes the federal statute.
As of October 11, 2026, this source review has not identified a comparable enacted or introduced federal pathway that repeals, delays, or materially redesigns Section 71106’s fiscal framework.
CMS, meanwhile, has said it expects to issue additional guidance on implementation of the provision. Its current Working Families Tax Cut implementation page contains section-specific materials for several other Medicaid provisions, including Sections 71107 and 71109, but no comparable Section 71106 implementation section as of October 11, 2026.
That is the vacuum.
State implementation is making the practical consequence visible. The same national community-engagement requirement is being translated into different month-level evidence rules, interim review cycles, and system handoffs. Missouri and Nebraska use one qualifying month at renewal, Iowa requires two, and Indiana and Montana describe three-month designs with different operating conditions. These examples are not measured PERM errors or proof of future disallowances. They illustrate why CMS implementation clarity must ultimately extend beyond statutory thresholds to reconstructible state eligibility decisions, notices, exceptions, and downstream payment records. The evolving national comparison belongs in the PERM Insights Research & Reference collection, rather than treating the states as a policy ranking.
On October 1, the governors of Oregon, California, Maine, New Mexico, and Virginia asked HHS for additional time to implement the new Medicaid requirements and avoid preventable coverage disruptions. The Oregon Governor’s Office described the request as an effort to give states time to administer the requirements responsibly and protect eligible people’s access to coverage.
The request illustrates why the timing and stability of operational guidance matter: states must translate federal requirements into system logic, evidence verification, exception handling, notices, and worker procedures, then test whether those parts work together. Our inference is that additional preparation time is most useful when tied to demonstrated readiness milestones and a clear account of what remains unresolved.
An implementation extension and relief from PERM financial consequences are separate questions. A request for more time does not itself change an effective date, and additional time to implement community-engagement requirements would not, by itself, repeal, delay, or waive Section 71106’s fiscal framework. States should continue building defensible eligibility controls while separately seeking any implementation flexibility or fiscal relief.
Congress Is Strengthening Integrity Controls At The Same Time
The September 29 House Energy and Commerce package makes the contrast more important.
The proposals would strengthen several parts of Medicare and Medicaid program integrity. Among them are bills addressing standardized fraud analytics, audits of high-risk providers, fraud-risk assessments and corrective-action plans, provider screening, state financial-integrity accountability, stronger federal oversight of Medicaid RAC programs, and extension of RAC requirements into Medicaid managed care.
Another proposal would allow states to retain a portion of the federal share of certain fraud recoveries when the money is reinvested in program-integrity activities.
Those ideas address real control questions: Who owns the risk? What should be audited? What data should states have? What was identified? What was recovered? Did the state act on known vulnerabilities?
But that package is principally about fraud prevention, oversight, recovery, and accountability. It does not itself answer the separate Section 71106 question:
What operating path should states follow when eligibility error exposure arises from documentation, process, systems, or eligibility-control failures that are not fraud?
That distinction matters because CMS expressly cautions that improper-payment rates are not fraud rates. In fiscal year 2025, CMS reported that 77.17 percent of Medicaid improper payments were associated with insufficient documentation, a category the agency says is generally not indicative of fraud or abuse.
Congress can demand stronger fraud controls and stronger eligibility accuracy at the same time. The problem is not that those goals conflict.
The problem is that the financial consequence and the compliance architecture are developing on different tracks.
The Federal Pathway Is Still Incomplete
States are not starting from zero.
CMS operates PERM and MEQC. States submit corrective action plans. Federal guidance exists for eligibility operations. States can use quality review, MEQC, internal audit, targeted sampling, and other controls to identify defects before a federal review does.
But GAO's August 2026 review shows that the current corrective-action architecture still has gaps. GAO found that CMS had accepted PERM corrective action plans missing required elements and was not systematically analyzing eligibility errors and corrective actions across states and years to determine what works.
GAO also reported an important historical fact: according to CMS officials, federal funds had not been withheld from states for eligibility error rates above 3 percent during the period GAO reviewed. Public Law 119-21 changes that future environment by limiting waiver authority beginning in fiscal year 2030.
That combination matters.
States are being asked to improve against a future consequence that is more financially significant than the recent operating history, while the federal system for identifying effective corrective actions is itself still being strengthened.
CMS's Section 71107 implementation guidance makes the unfinished work explicit. The agency notes that Section 71106 changes eligibility-related disallowances and waiver authority beginning in fiscal year 2030 and says additional guidance is expected.
That is not evidence that the policy is unworkable.
It is evidence that the operating path is not yet complete. The constructive question is therefore not how to make the 3 percent threshold easier to miss. It is how to make a payment-weighted eligibility improper-payment rate below 3 percent—our shorthand, 97 or Better—easier to achieve and defend.
States Still Should Not Wait
The emerging state agenda is increasingly clear.
Reduce unnecessary complexity. Improve eligibility evidence. Make corrective actions measurable. Strengthen automation without losing auditability. Test high-risk pathways. Reconcile eligibility decisions to enrollment and payment systems. Use MEQC, internal quality work, and Shadow PERM approaches to identify defects before federal sampling does.
Those are sensible actions whether or not Congress revisits Section 71106.
The October 1 claiming transition requires its own controls
A second immediate test is the October 1, 2026 implementation of Section 71109, which changes the availability of federal Medicaid funding for full-scope coverage of certain noncitizens. CMS’s April 8 State Health Official letter distinguishes individuals and services eligible for federal financial participation from coverage that a state may choose to support with state-only funds, subject to the statutory categories and exceptions. This is not simply a community-engagement requirement and not, by itself, a PERM finding. [13]
The operational question is whether eligibility category, immigration-status evidence, applicable exceptions, federal-versus-state funding code, enrollment records, managed-care payments, and expenditure claiming remain synchronized at the effective-date boundary. A state can preserve some coverage with state financing while still needing to ensure that it does not claim federal matching funds for expenditures that are no longer federally eligible. An incorrect classification may create an unsupported federal claim; an incorrectly terminated eligible person may experience a coverage interruption. The correct control must guard against both errors. [13]
For states and their fiscal agents, useful tests include a dated crosswalk of category-to-funding rules; conversion of affected records; handling of affected refugees, asylees, and other populations under the applicable funding rules and exceptions; prospective claim edits; reconciliation of pre- and post-October 1 expenditures; and an independently reproducible audit trail. These are recommended control tests, not reported findings of improper federal claims.
New York’s Bronx exception shows why evidence architecture matters
New York’s health department confirmed in October that it is invoking the optional high-unemployment hardship exception for Bronx County under the separate federal community-engagement framework. Local reporting and the Bronx Safety-Net Alliance estimate that about 200,000 residents otherwise subject to the new requirement could benefit. That is a prospective estimate, not an observed reduction in coverage losses or PERM findings. [10, 11]
CMS’s June 2026 interim final rule allows states to elect short-term hardship exceptions for eligible people residing in counties meeting specified unemployment thresholds. The Bronx development is a state implementation decision under Section 71119, not federal relief from Section 71106’s future PERM fiscal rules. New York notified CMS; available reporting does not establish a formal CMS approval requirement or an approved waiver. [10, 12]
The operating question is what the eligibility record will show when an exception is applied. States need date-effective county residence, an authoritative unemployment indicator and reference period, documented state election, rules for the duration or expiration of hardship treatment, notice logic, and a reproducible decision trail. They also need a way to test whether a person moved, whether an exception ended, and whether the next renewal applied the correct rule version.
This example does not establish that CMS has failed to issue guidance for county exceptions. It shows that even where federal options are specified, states still must build defensible evidence and change-control processes. That is a practical preview of the broader work needed before future eligibility errors translate into federal fiscal exposure.
But several federal questions still need answers before 2030.
How will CMS implement Section 71106 in practice? How will insufficient-information findings flow into the payment-reduction calculation? How will the remaining waiver authority operate? How will state audits be incorporated if the Secretary elects to use them? What expectations will apply when work requirements, six-month renewals, immigration-status changes, system modernization, and other major eligibility changes are affecting the same control environment?
Those are not reasons for states to wait.
They are reasons for federal policymakers to define the road while states are still building the vehicle.
The Debate Needs A Third Lane
The Medicaid debate often falls into two familiar positions.
One side emphasizes fraud, waste, improper payments, stronger enforcement, and taxpayer protection.
The other emphasizes coverage loss, administrative burden, procedural disenrollment, state budget pressure, and the danger of treating documentation failures as evidence of fraud.
Both perspectives are now visible in the public record.
PERM creates a third lane.
The question is whether the country is building an eligibility-control environment capable of meeting the standard Congress has enacted.
That requires more than arguing over whether the standard is too harsh or whether states should simply make fewer errors. It requires a credible national operating pathway: clear CMS interpretation, usable data, testable system requirements, auditable evidence standards, functioning corrective-action feedback, state accountability, and enough lead time to prove that interventions work before the fiscal consequence arrives.
If Congress wants stronger accountability, it should want states to know exactly what success requires.
If advocates believe the new fiscal structure is unsound, criticism is only the first step; the policy debate also needs a concrete statutory or administrative alternative.
And if states expect relief, they should not build their readiness strategy around that expectation.
The Policy Vacuum Is Not Silence
There is no longer silence.
There is advocacy. There is congressional program-integrity legislation. There is state implementation work. There is CMS guidance, with more still expected. There is GAO evidence that the corrective-action system itself can be improved. There are increasingly sophisticated state efforts to reduce errors before the next PERM cycle.
What remains missing is alignment.
Section 71106 establishes a future fiscal consequence. Other provisions of Public Law 119-21 increase eligibility transaction volume and complexity. Congress is separately proposing stronger integrity machinery. Advocates are warning that the fiscal framework can reach documentation and administrative failures that are not fraud. CMS has not yet completed the implementation guidance for the fiscal provision itself.
Those streams are moving at the same time, but they have not yet converged into a clear federal operating pathway for states.
That is the PERM policy vacuum now.
Not a lack of debate.
A lack of alignment between the consequence Congress enacted and the operating architecture states will need to avoid it.
States should proceed as though the consequence will arrive on schedule.
Congress and CMS should use the remaining time before fiscal year 2030 to make the pathway to compliance just as explicit as the pathway to fiscal consequence.
97 or Better is not about lowering the bar. It is about building the conditions to clear it.
Sources And Attribution
This is an independent PERM Insights & Perspectives analysis. Advocacy positions and congressional proposals are attributed to their respective sources. Proposed legislation is not described as enacted law. The legislative discussion reflects the source review through October 5, 2026. The cited source links and CMS implementation resource page were rechecked October 15, 2026; that page continued to list no separate Section 71106 implementation section.
1. Public Law 119-21, Section 71106
2. National Health Law Program, “A Proper Scare: How OBBBA Changes Improper Payment Rules to Expose States to Significant Financial Liability,” September 9, 2026
3. House Committee on Energy and Commerce, 14-bill program-integrity package, September 29, 2026
4. House Committee on Energy and Commerce Majority Staff Report release, September 29, 2026
5. CMS, Payment Error Rate Measurement
6. CMS, Fiscal Year 2025 Improper Payments Fact Sheet
7. CMS, Section 71107 Eligibility Redeterminations guidance, including Section 71106 implementation note
8. CMS, Working Families Tax Cut Legislation implementation resource page
9. GAO-26-108017, Medicaid: Improved Oversight Needed of State Eligibility Error Corrective Action Plans
10. New York State Department of Health confirmation reported by Gothamist, October 8, 2026: Bronx county hardship election and notification to CMS.
11. Bronx Safety-Net Alliance / Urban Health Plan, October 9, 2026: Estimated 200,000 potentially affected residents.
12. CMS, June 1, 2026: Community Engagement Interim Final Rule Fact Sheet.
13. CMS, April 8, 2026: SHO 26-001, Section 71109 Implementation.
14. Oregon Governor’s Office, October 1, 2026: Governor Kotek Pushes for More Time to Protect Medicaid Coverage.
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Ralph Choate, Founder, Editor & Principal Author | perminsights.org