Apr, 05, 2019

Work Requirements Litigation

Michael Kolber and Deborah Bachrach, Manatt Health

On March 27, for the second time, a federal judge vacated the Centers for Medicare & Medicaid Services (CMS) approval of Kentucky’s Medicaid 1115 demonstration waiver to test, among other things, a work requirement as a condition of Medicaid eligibility. In a related case of Arkansas’s Medicaid work requirements demonstration, the judge likewise vacated the federal approval, remanding it to CMS for further consideration. Notably, because Arkansas, unlike Kentucky, had already implemented the work requirements, the decision requires the state to cease its work requirement and related Medicaid disenrollments. Below, we review the court’s decision and its implications for both Kentucky and Arkansas and other states with similar approved or pending waiver requests, as well as for states contemplating imposing work or other “community engagement” requirements on Medicaid beneficiaries.

To date, CMS has approved work requirements in eight other states; a lawsuit has already been filed over one of these approved demonstrations, in New Hampshire. The New Hampshire case is before the same judge that decided the Kentucky and Arkansas cases. Seven additional states are currently seeking CMS approval to implement work requirements.

Decisions in Kentucky and Arkansas Cases

In 2018, Judge James Boasberg, of the U.S. District Court in the District of Columbia, held that, in approving waivers for Medicaid demonstration programs, CMS had to consider whether the waiver would promote a key objective of the Medicaid statute: furnishing “medical assistance” – that is, providing coverage for medical care. When CMS first approved the Kentucky waiver, Judge Boasberg concluded that CMS had not adequately considered the impact work requirements, and other aspects of the waiver, would have on access to Medicaid coverage. In the 2018 opinion, Judge Boasberg set aside CMS’s approval and remanded the matter to CMS for further consideration. CMS opened a second comment period and again approved the waiver, this time pointing to additional justifications for the waiver. Nonetheless, in the March 27th opinion, Judge Boasberg concluded that CMS had still failed to adequately justify its approval, and again vacated and remanded the matter to CMS.

As it had when first approved by CMS, the Kentucky waiver requires certain Medicaid beneficiaries to spend 80 hours a month working or performing other specified community engagement activities, eliminates retroactive Medicaid eligibility, imposes monthly income-based premiums, and establishes other requirements. In Stewart v. Azar, No. 18-152 (D.D.C. Mar. 27, 2019), Judge Boasberg vacated all of these provisions. The court ruled that CMS had failed to adequately explain why a waiver was justified, in light of the substantial coverage losses that were expected under the waiver and the lack of evidence in the administrative record that rationally supports the assertion that the waiver would promote coverage. As it had when it first considered the waiver, CMS said the waiver would promote beneficiaries’ health and financial independence. The court again concluded that beneficiary health and financial independence are not objectives of the Medicaid statute, and, even if they were, CMS had not rationally explained how promoting beneficiary health and financial independence could justify the significant reduction in health coverage that was expected under the waiver.

Finally, the court rejected CMS’s arguments that the financial sustainability of the Medicaid program justified its approval of the waiver. While the court found that improving sustainability of the Medicaid program might be a legitimate bases for approving a demonstration, it concluded that in approving the Kentucky waiver CMS had failed to calculate the magnitude of savings that would be generated or to weigh those savings against the adverse beneficiary impact. In addition, the court rejected an argument that CMS should be allowed to approve the waiver because Kentucky had threatened to roll-back its Medicaid expansion for fiscal reasons (as it is entitled to do) if it were not granted the work requirements waiver—and having beneficiaries covered with a work requirement was better than not having them covered at all. To accept this argument would lead to “radical results”: because states are free not to participate in Medicaid at all, this argument would mean that CMS has authority to grant any waiver at all as long as the state threatened to pull out of the Medicaid program if it were not granted. The court concluded this was inconsistent with Section 1115, which establishes criteria for waiver approvals.

Arkansas’s approved waiver was similar to the Kentucky waiver that Judge Boasberg originally vacated in 2018, except that Arkansas had already implemented its waiver when the litigation challenging it was filed. Thus, in Gresham v. Azar, No. 18-1900 (Mar. 27, 2019), Judge Boasberg had little difficulty concluding that CMS acted arbitrarily and capriciously in approving the waiver; he then considered whether it was appropriate to simply remand the Arkansas waiver to CMS without vacating it, thereby permitting the existing program to continue while CMS reconsidered its approval. However, because the ordinary remedy for arbitrary government action is to vacate it, and because the court concluded the disruption of halting the program did not offset the harm that the waiver continues to cause, he did both vacate and remand, ending the Arkansas work requirements until either CMS reapproves them or a higher court reviews Judge Boasberg’s decisions. The decision also vacates CMS’s approval of the state’s request to waive retroactive eligibility, but other elements of Arkansas’s longstanding Medicaid waiver, including its premium assistance program, are unaffected by the ruling.

Next Steps and Implications

Judge Boasberg has scheduled a status conference for April 10, at which point CMS may announce whether it intends to reconsider either or both state waivers on remand, or if instead it would like Judge Boasberg to issue final judgment, which would allow CMS to appeal to the Court of Appeals for the D.C. Circuit.

Because district court decisions do not create new legal precedent, CMS is free to continue approving similar work requirements in additional states, though they are likely to be struck down. (Stakeholders who seek to challenge future waiver approvals will be able to sue in D.C. federal court and can ask that their cases be treated as related to the Kentucky and Arkansas cases, as the plaintiffs in the New Hampshire work requirement waiver litigation did, and thereby assigned to Judge Boasberg.)

Judge Boasberg did not rule that work requirements are per se illegal in Medicaid; he ruled only that CMS acted arbitrarily and capriciously because it failed to provide a rational explanation for how these particular waivers are in furtherance of Medicaid’s objective of providing health coverage, leaving open at least the theoretical possibility that CMS could someday approve a work requirements waiver that rationally advances that objective. However, in light of the state’s concession that it expects 95,000 people to lose coverage in Kentucky and the evidence that over 18,000 people actually did lose coverage in Arkansas, and having failed twice to convince Judge Boasberg that the Kentucky waiver supports coverage, CMS may face increasingly long odds that it can ever win, at least at the trial court level.

Even if the district court decisions are not binding legal precedent, the litigation may be shifting states’ attitudes to a more cautious posture: on April 2 the Idaho Senate passed work-requirements legislation that does not terminate coverage for beneficiaries who fail to maintain employment, in an attempt to avoid the legal pitfalls that have befallen Arkansas and Kentucky.

CMS, for its part, appears unwavering in its policy position on work requirements; the agency approved a work-requirements waiver for Utah on March 29 after the Kentucky and Arkansas decisions. For this reason, CMS is also likely to appeal Judge Boasberg’s decisions in these cases.