Would be interesting to lock down the session manager agent (if possible) so that the only way to privileged access is through sudo-like priv esc that uses 2fa.
As far as I know, SSH over SSM doesn't do anything regarding user management. It just establishes an SSH connection. Management of users on the host, authorized SSH keys, etc. is totally out of scope for SSM.
So if you already have access control setup on your host, then SSM doesn't do anything to undermine it. If you don't have it, you'll still need to add it.
For federation you need to rely on the config in whatever your identity provider is, like Okta.