In a week of legal machinations and legal setbacks on the health care front for the Trump Administration, Judge James E. Boasberg’s opinion in Gresham v. Azar suggests that the answer is no, at least as the question was posed by the Secretary of the Department of Health and Human Services (HHS) and the state of Arkansas. Gresham v. Azar marks the second rebuff of the Trump Administration’s attempts to defend work requirements for Medicaid in federal court.
The Gresham case joins the same court’s 2018 decision in Stewart v. Azar (Stewart I), which vacated and remanded a similar section 1115 waiver proposal from Kentucky. Notably, the Gresham case was also issued along with Stewart v. Azar II, which vacated and remanded Kentucky’s second attempt to impose work requirements in Medicaid. Throughout its opinion, the court extensively discusses the factual parallels between Gresham and Stewart I to support arriving at the same conclusion: that the Secretary’s approval of the Arkansas demonstration project proposal was arbitrary and capricious because the Secretary did not adequately determine the proposal’s potential impact on Medicaid coverage. Unlike in Stewart I, however, where the Kentucky demonstration project had not yet taken effect, the Arkansas demonstration project has been in effect since June 2018.
Notwithstanding, and given the deficiencies that the court identified in the Secretary’s approval of the Arkansas demonstration project, the court’s opinion completely vacates and remands the Arkansas project, stating that “the probable disruptions are not so significant as to require deviation room the ordinary rule of vacatur.” The two opinions are a significant setback for the Trump Administration, which has made work requirements in Medicaid a lynchpin of its Medicaid policy.
Before discussing the court’s analysis in Gresham, it may be helpful to understand some of the key features of the Arkansas Medicaid demonstration/waiver proposal at the heart of the legal battle.
As we have written in the past, section 1115 of the Social Security Act allows states to deviate from the otherwise-applicable Medicaid program rules in order to test demonstration projects that, in the opinion of the Secretary of HHS, “promote the objectives” of the Medicaid program. Going back at least to the Administration of President Gerald Ford, HHS has used 1115 waivers to test various alternative benefit designs, payment arrangements, or coverage policies in lieu of the rigid requirements of the Medicaid program. The Trump Administration’s “community engagement” waivers are just another example in the 40+ year history of Medicaid demonstration projects.
Arkansas has traditionally had some of the Medicaid program’s most stringent eligibility standards, covering only low-income children, the aged, disabled, and parents with very low incomes. The passage of the Patient Protection and Affordable Care Act (ACA), however, significantly expanded the eligibility standards for Medicaid by “expanding” Medicaid coverage to able-bodied adults below 133% of the federal poverty limit (FPL), but only for states that chose to participate (i.e. “expansion states”). Arkansas was one of the few states in the southern U.S. that elected to expand Medicaid, effective January 1, 2014. For two years, Arkansas Medicaid provided health coverage to more than 278,000 newly eligible individuals.
When the Trump Administration took the reins of government, however, HHS explicitly encouraged states to submit section 1115 waiver proposals to help revamp Medicaid. Arkansas answered the call and submitted three amendments to its Medicaid program (known as “Arkansas Works”) that would:
- Shift income eligibility for the expansion population rom 133% to 100% of the FPL
- Institute work requirements as a “condition” of continued Medicaid coverage
- Eliminate the 3-month retroactive coverage period normally applicable to Medicaid entitlement
On March 5, 2018, the Secretary of HHS approved the work requirements and limits to retroactive coverage (but reduced retroactive coverage to 1-month rather than eliminate it). The reduction of eligibility to 100% of FPL was abandoned by Arkansas.
The work requirements apply to most able-bodied adults in the Medicaid expansion population ages 19-49 and require them to complete 80 hours of employment or other qualifying activities each month. Nonexempt individuals who do not report sufficient qualifying hours for any three months in a plan year are disenrolled from Medicaid for the remainder of that year and not permitted to re-enroll until the following plan year. The work requirements took effect for persons age 30-49 on June 1, 2018, and for persons age 20-29, on January 1, 2019.
Since the amendments took effect, Arkansas Medicaid has disenrolled nearly 17,000 individuals for not reporting their compliance.
Why Arkansas’ Demonstration Project Proposal Violated the APA
In August 2018, ten Arkansans sued the Secretary of HHS arguing that the federal government’s approval of Arkansas’ new requirements violated the Administrative Procedure Act (APA) and the Constitution. The APA gives jurisdiction to the federal courts to review federal agency actions to determine whether or not those actions are consistent with federal law, in excess of the agency’s authority, or applied in an arbitrary or capricious manner. As such, the APA imposes some “guardrails” around the ability of the Executive Branch of government to act when it engages in rulemaking or other actions that affect the rights or obligations of affected parties.
Of the three arguments advanced by the Plaintiffs, Judge Boasberg found it necessary to only consider the first, which argued that HHS did not sufficiently consider whether Arkansas’ waiver “would promote the objectives” of Medicaid, including how it would affect the provision of medical assistance to the needy.
In short, Judge Boasberg determined that the Secretary, just like the waiver at issue in Stewart I, “failed to consider adequately the impact of the proposed project on Medicaid coverage.” The court noted that the Secretary did not offer his own estimates of coverage loss or grapple with comments submitted to HHS projecting a substantial number of Arkansas residents being disenrolled from Medicaid as a result of the amendments.
Remember what we said above: in order to approve a waiver, the Secretary of HHS must assess that the waiver “promote the objectives” of Medicaid. But in order to determine whether or not a project will “promote” Medicaid’s objectives, it would stand to reason that the Secretary would need to take into account the objectives of Medicaid in the first place. And that is where Judge Boasberg found that the approval was lacking.
The court restated its description articulated in the Stewart I case that one of Medicaid’s “central objectives” is to “furnish medical assistance to persons who cannot afford it.” Given the Secretary’s own apparent concession on this point in his Reply Brief, the court criticized the Secretary’s approval letter to the Arkansas Medicaid program wherein the Secretary considered three objectives of the Medicaid program, but none of which involved whether the “project would help or hurt Arkansas in funding medical services for the needy.”
The court also rejected other arguments advanced by the Secretary:
- That it was not possible for the Secretary to estimate potential disenrollment rates—the court stated that regardless of the feasibility of such an estimate, the Secretary failed to respond to commenters that did conduct such estimates.
- That it was not necessary for the Secretary to estimate potential disenrollment rates because Arkansas did not predict that the project would even cause a coverage loss—the court stated that regardless of whether the state submits information or not, it is the Secretary’s duty to approve only demonstration projects that are “likely to assist in promoting the objectives of Medicaid”. Otherwise, HHS could approve a project that would decimate Medicaid coverage without so much as addressing the issue simply because the state did not submit its own estimate of coverage loss.
- That it was not necessary for the Secretary to offer any explanation of his decision to approve a demonstration project because the governing regulations do not require the Secretary to respond to comments or articulate the basis for his decision—the court stated that even so, the APA itself requires more when an agency decision is judicially reviewable.
- That the Arkansas Works amendments promote several other important objectives of Medicaid, including the health of Medicaid-eligible persons—the court restated its position from Stewart I that the agency’s focus on “health”, whether warranted or not, does not substitute for considering Medicaid’s central concern of covering health costs through the provision of free or low-cost health coverage.
- That any deficiencies in the administrative record are cured by HHS’ subsequent approval of Kentucky’s similar project on remand from the Court’s decision in Stewart I—the court states that this argument runs “headlong” into the “fundamental” rules of law prohibiting post hoc rationalizations for agency action and asserted that the agency action here must be supported by what was in the administrative record supporting it.
What happens now?
The government will have an opportunity to appeal, but for now, Stewart I, Stewart II, and Gresham symbolize victories for opponents of the Trump Administration’s work requirements. Moreover, the Administration could re-consider the Arkansas and Kentucky waivers in light of these decisions; the court in Gresham noted that its opinion does not completely preclude adoption of work requirements if HHS or the state take another bite at the apple. But the state may find it harder to do so given that the Medicaid expansion in Arkansas actually appears to have reduced expenditures, thus depriving the state of the argument that the expansion has pressed its annual budget and has precipitated the need for the Arkansas Work amendments.
 But stay tuned for future developments on income eligibility thresholds. We at the Medicaid and the Law blog predict that changes are coming soon in this area.